When a taxpayer does not file a return with the IRS, they will be subject to a failure to file penalty unless of the following exceptions pertains to their situation:
1. Death, Serious Illness, or Unavoidable Absence – If any of these situations involve an individual, the circumstances cover both the taxpayer and their immediate family. In terms of a corporation, estate, or trust, the death, serious illness, or unavoidable absence has to happen to the person that has sole authority to file the return, make the deposit, or pay the tax due.
2. Inability to Obtain Required Records – The IRS will generally want to know from the taxpayer a few important facts such as, when the taxpayer became aware that the records were missing, why the records were missing, what steps the taxpayer took to look for the records, and why the taxpayer did not make an estimate of the information.
3. Forgetfulness – The taxpayer can claim that they simply forgot but will need proof that the forgetfulness has a basis in reasonable cause. If the taxpayer cannot prove reasonable cause, they cannot use this exception for failure to file their tax return.
4. Erroneous Advice or Reliance – In some cases, a taxpayer may claim that they used advice from a third party that was erroneous and therefore the cause of their failure to file. Generally, this exception does not have a basis in reasonable cause and therefore will not be accepted by the IRS.
Keep in mind that many other exceptions are possible for not filing a tax return but the taxpayer must have evidence of the reason and have a basis in reasonable cause. If there is no reasonable cause, the IRS will generally not allow the taxpayer to use the exception and waive the failure to file penalty.