Why I Forgot Is Not Reasonable Cause, and What to Argue Instead

Honesty is a virtue. In a penalty abatement request, it is also a trap if you are not careful about what you are honestly saying.

I forgot. I made a mistake. I thought my bookkeeper sent the payment. These are true for a lot of people, and the IRS manual says, in so many words, that none of them is generally reasonable cause. Before you send a request built on one of them, understand why, and look for the relief that actually fits.

Forgetfulness

IRM 20.1.1.3.2.2.7 says a taxpayer may try to establish reasonable cause by claiming forgetfulness or an oversight by the taxpayer or another party. It then says this is generally not in keeping with the ordinary business care and prudence standard and does not provide a basis for reasonable cause.

The reasoning is simple. Ordinary business care includes keeping track of your obligations. A prudent person uses a calendar, a reminder, a system. Forgetting is the failure the penalty exists to discourage, so it cannot also be the excuse for it.

Mistakes

IRM 20.1.1.3.2.2.4 treats a claim that a mistake was made the same way. Generally, it is not in keeping with ordinary business care and does not provide a basis for reasonable cause.

But the manual leaves a door open here that it does not leave for forgetfulness. It says the reason for the mistake may be a supporting factor if additional facts and circumstances support a finding of ordinary business care and prudence. It then lists what to consider:

• When and how you became aware of the mistake.
• The extent to which you corrected it.
• Your relationship with the subordinate, if you delegated the duty.
• Whether you took timely steps to correct the failure after it was discovered.
• The supporting documentation.

The IRS website echoes this. It lists mistakes and oversights among reasons that generally do not qualify, then adds that in certain cases reasonable cause may apply to a mistake if additional facts show you tried to comply.

So a mistake that happened despite a reasonable system, was caught quickly and was fixed immediately is a different story from a mistake that sat unnoticed for a year.

Relying on someone else

The manual's forgetfulness section adds two points about other people. Relying on another person to perform a required act is generally not sufficient for reasonable cause. And it is the taxpayer's responsibility to file timely and make timely deposits or payments; that responsibility cannot be delegated.

This tracks the Supreme Court's holding in United States v. Boyle, 469 U.S. 241 (1985), that reliance on an agent to file a return on time is not reasonable cause. The IRS website puts it in practical terms: you should know what your preparer files and get proof that your return or payment was sent on time.

The exception, again from Boyle, is reliance on substantive advice about what the law requires. That is a different argument, covered in relying on a tax professional.

Lack of money

One more excuse belongs on this list. The IRS website says lack of funds, by itself, is not reasonable cause for failing to pay or deposit. It also says other facts showing you used reasonable care and tried to comply may support relief.

The regulation behind that is Treas. Reg. 301.6651-1(c)(1), which allows relief for failure to pay if you exercised ordinary business care and prudence in providing for payment and were still unable to pay or would suffer undue hardship. That is a real argument with real requirements, and it is explained in failure-to-pay penalty relief and undue hardship.

Before you argue, check the easier doors

If your honest explanation is one of these, the best move is usually not to argue it at all. Check these first, in this order, which matches the IRS's own order of relief in IRM 20.1.1.3:

• Is the penalty correct? Did a payment get misapplied, an extension go unrecorded, or a deadline get miscounted? Correction of IRS error comes first and spends nothing.
• Does a statute already excuse it? A timely mailed return or payment, a disaster postponement, a combat zone extension.
• Does first-time abatement apply? If your prior three years are clean, FTA removes failure-to-file, failure-to-pay and deposit penalties without any reason at all. You can forget all you want, once. See first-time abatement explained.

FTA exists precisely for the person whose honest answer is that they slipped up. Use it for that.

When there is more to the story

Sometimes I forgot is the short version of something that does qualify. The person forgot because they were in the hospital, or caring for a dying parent, or dealing with the aftermath of a fire. In that case, the forgetting is not the reason. The event is.

Lead with the event, not the lapse. The IRS evaluates what you tell it. If you tell it you forgot, the manual tells the employee what to do with that. If you tell it you were hospitalized from March 30 to April 22 and filed on May 1, the manual tells the employee something very different. The guides on serious illness and disasters show how to present those facts.

Do not invent a story. The penalty is not worth a false statement, and requests are made under penalties of perjury. But do not bury a real one under a confession of carelessness either.

Notices you could not read

There is one situation where not responding to the IRS has its own section in the manual. IRM 20.1.1.3.2.2.8 addresses inaccessible notices. Under Policy Statement 1-47, the IRS must make reasonable accommodations for people with disabilities, and a taxpayer who cannot read standard print notices may request them in an alternative format.

The manual says a taxpayer may request penalty relief if a notice requiring action arrived in standard print and the taxpayer did not respond in time because the notice was inaccessible. The reasonable cause standard still applies. The IRS will ask what impairment prevented reading the notice, when the taxpayer first became aware of the issue, what the taxpayer already knew about the amount owed, when the IRS learned that accessible notices were needed, and whether the taxpayer responded promptly once an accessible copy arrived.

The manual's example is instructive. A taxpayer who filed a return showing a balance due and paid nothing would not qualify, because the taxpayer already knew about the unpaid tax before the notice arrived. The relief is for genuine lack of access to information, not for a notice that merely repeated what the taxpayer already knew.

Systems that failed

One more category deserves mention. The IRS website lists system issues that delayed a timely electronic filing or payment among examples of valid reasons for filing or paying late, referring to Policy Statement 3-2. If you scheduled an electronic payment on time and a system failure, not your own oversight, kept it from going through, that is not forgetfulness. Keep the confirmation numbers, screenshots and bank records that show what you did and when.

The difference between I forgot and I did it and the system failed is the difference between a penalty that stays and a penalty that goes. Proof is what separates them.