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PENALTIES—Reconsidering the Reasonable Cause Defense to Late-Filing Penalties and the Impact of the Service’s Clarification of the DIIRSP

By Lawrence Sannicandro
Journal of Tax Practice & Procedure
Winter 2020 Edition

During the 2019 fiscal year, the Internal Revenue Service (“Service” or “IRS”) assessed more than 4.7 million late-filing penalties that cost taxpayers nearly $9.9 billion. These late-filing penalties account for an incredible 24% of the total $40.5 billion of penalties the Service assessed during the same year. The Service abated a mere 818,000 late-filing penalties, “saving” taxpayers around $3 billion. Stated differently, the Service removed only around 17% of the total 4.7 million or so late-filing penalties it originally assessed. Taxpayers who pursued abatements of late-filing penalties in litigation have fared even worse. During the five-year period between June 1, 2014, and May 31, 2019, taxpayers prevailed in less than 14% of the cases where the failure-to-file penalty was at issue.

Armed with more than 150 statutory provisions authorizing the Service to impose penalties for various misdeeds, and overwhelming success in having courts sustain the penalties imposed, the Service has become more aggressive in asserting penalties in cases where penalties historically would not have been asserted.


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