What Does the IRS Consider “Reasonable Cause”?

This is a common question with respect to requests for relief related to IRA transaction errors. Unfortunately, there is no black and white answer. If a taxpayer petitions the IRS for relief, the taxpayer must provide evidence showing “reasonable cause.”

Although the IRS does not offer clear cut rules, there is some guidance that can be gleaned from regulations, private letter rulings (PLRs) and court cases. Reasonable cause is usually established by something wholly out of the taxpayer’s control such as grave illness, death or erroneous advice from the IRS itself. The IRS may also consider factors such as whether there was willful neglect on the taxpayer’s part, did the taxpayer use ordinary care and prudence, and whether the tax payer was diligent and took prompt action once the error was discovered.

For example, in the case Stine v. U.S., Mrs. Stine missed a gift tax filing deadline and sought relief from the IRS. She cited several health problems as “reasonable cause” for her failure to meet the deadline and presented proof of various health problems including pneumonia, recurrent upper respiratory infections, knee pain, knee replacement surgery, a thyroid growth, heart palpitations, and cataract surgery. The IRS still denied her request for penalty abatement…why?

Mrs. Stine’s evidence showed she was only in the hospital for one night and during this time she had made several other (arguably more complicated) transactions that were unaffected by her list of ailments. The Court denied her request for relief because she did not show reasonable cause under the circumstances and stated that “Mrs. Stine was only selectively incapacitated as to her gift tax obligations.”

The Court affirmed Mrs. Stine’s obligation to pay $450,000 in penalties plus $21,500 in interest, ouch.

Source: Stine v. U.S. (Fed. Cl., Oct. 23, 2012, 10-445 T) 2012 WL 5207502

More Updates


The coronavirus-related distribution (CRD) rules for Roth conversions have a gaping hole. An “affected person” (as we have defined in previous blogs), is entitled under the CARES Act to withdraw up to $100,000 from their IRA or workplace retirement plan. A CRD avoids the 10% early distribution penalty for those under 59 1/2, can be

Read More »

Rolling Over an RMD

Like most people’s lives, the retirement world is upside down. This is made evident by a single statement: “Required minimum distributions (RMDs) can be rolled over.” Yes, that is the new normal—at least for this year. RMDs are considered the first money out of an IRA and workplace plan. Typically, these dollars are ineligible to

Read More »

Tapping Into Retirement Accounts If Not Directly Impacted By COVID-19

The recently-­‐enacted Coronavirus Aid, Relief, and  Economic Security Act (CARES  Act) signed by President Trump  on  March  27, 2020, allows  “qualified individuals” to take up  to  $100,000 of  penalty-­‐free IRA and company plan withdrawals during 2020. “Qualified individuals” include those who are (or whose family members are) sickened by the virus or who have virus-­‐related

Read More »
Scroll to Top