Unable to Obtain Records: When Missing Paperwork Is Reasonable Cause

I could not file because I did not have my records. It is one of the most common explanations the IRS hears, and one of the most commonly rejected.

That is not because the IRS assumes people are lying. It is because the explanation, as usually stated, does not meet the standard. The manual tells IRS employees exactly what to look for in a records-based request. Once you see the list, you understand why a one-line explanation fails and what a successful one looks like.

The IRS position

IRM 20.1.1.3.2.2.3 starts with a frank statement: explanations relating to the inability to obtain records may constitute reasonable cause in some instances, but may not in others. The deciding question is the same one that governs all reasonable cause. Did you exercise ordinary business care and prudence, and were you unable to comply because of circumstances beyond your control?

Missing records are a circumstance. Whether they were beyond your control, and whether they actually prevented compliance, is the argument.

The eight questions you must answer

The manual lists the information to consider. This is effectively the template for your statement:

• Why the records were needed to comply.
• Why the records were unavailable, and what steps you took to secure them.
• When and how you became aware that you did not have the necessary records.
• Whether you explored other means to secure the needed information.
• Why you did not estimate the information.
• Whether you contacted the IRS for instructions on what to do about missing information.
• Whether you promptly complied once the missing information was received.
• Supporting documentation, such as copies of letters written and responses received in your effort to get the information.

Answer all eight. A statement that answers only the second question, why the records were unavailable, leaves the IRS employee with six unanswered questions and a reason to deny.

The estimation question

Item five is where most requests break. The tax system expects people to file on time with the best information available and correct later if needed. Amended returns exist for exactly that reason.

So when you say you could not file without a particular document, the IRS will ask why you could not file using an estimate and amend when the document arrived. Sometimes there is a good answer. The missing information was the core of the return, not a detail. There was no reasonable basis to estimate it. A reasonable estimate could have been badly wrong in a way that created its own problems.

If you have that answer, give it explicitly. If you do not, understand that this weakness exists before you build a request around missing records. In that case, consider whether an extension should have been filed and whether first-time abatement is available instead.

Records held by someone else

A common version of this problem is records in the hands of a third party: a former spouse, a former business partner, a previous accountant, a bankruptcy trustee, a brokerage that issued a corrected form late.

The manual's own example of a request that may fail involves exactly this. Records were in the control of a third party, such as a bankruptcy trustee or an accountant. They were returned well in advance of the filing deadline. The return was filed several months after they came back. The third-party control was real, but it did not explain the delay.

When records are held by others, your proof is your correspondence. Letters requesting the records, emails, certified mail receipts, the responses or lack of them. The manual specifically lists copies of letters written and responses received as supporting documentation. If your efforts to get the records were phone calls with no notes, reconstruct them as best you can with dates, and start putting requests in writing.

Records destroyed

When records are destroyed in a fire, flood or similar event, this category overlaps with fire, casualty and disaster relief. The manual cross-references the two for exactly this reason.

Here the questions shift toward reconstruction. What was lost? What could be rebuilt from bank statements, third-party reports or account transcripts? How long did reconstruction reasonably take? An IRS wage and income transcript, for instance, shows information returns the IRS has on file, which can fill gaps for many individuals. Showing that you pursued those alternatives answers item four on the list.

Relying on an accountant who had the records

Many people say their accountant had the records and did not finish the return. Be careful here. The manual says reliance on another party to comply on your behalf is generally not reasonable cause, particularly for filing or paying, because that responsibility cannot be delegated. The Supreme Court said the same about filing deadlines in United States v. Boyle, 469 U.S. 241 (1985).

The records angle is different from simple reliance, and the manual recognizes the distinction. Its section on reliance specifically asks whether the taxpayer was unable to comply because they did not have access to their own records. An accountant who refused to return your files is a records problem. An accountant who simply did not get around to your return is a reliance problem. Frame your facts accurately; the IRS will notice if you dress one up as the other. The tax professional reliance guide covers the reliance side.

Calling the IRS about missing information

Item six on the manual's list asks whether you contacted the IRS for instructions on what to do about missing information. Most people never think to do this, and it shows.

A documented call or letter to the IRS before the due date, explaining that a key document was missing and asking how to proceed, is strong evidence of ordinary business care. Even if the answer was simply to file with an estimate, the call shows you were trying to comply rather than waiting it out. Write down the date, the number you called, the name or ID number of the employee, and what you were told.

If the IRS gave you wrong instructions, that raises a separate issue. Erroneous advice from the IRS has its own relief rules, covered in erroneous IRS advice.

Putting it together

A strong records request tells a story with dates and documents:

• Here is what was missing and why the return could not reasonably be prepared without it.
• Here is when we discovered it was missing and every step we took to get it, with copies.
• Here is why estimating was not a reasonable option.
• Here is the date the records arrived and the date we filed, a short time later.

Notice that every line of that story is checkable. The IRS can compare your dates to its own records, such as when information returns were filed and when you filed. Consistency between your account and the IRS's data builds credibility. A mismatch, such as a claim that a Form 1099 arrived in June when the payer filed it with the IRS in January and mailed it to your correct address, damages it.

If you can tell that story, you have a real reasonable cause case. If you cannot, the honest move is to look for another basis for relief, rather than send a request the manual has already told the reader how to deny. Writing a penalty abatement letter shows how to put it on paper.