The test
The IRS treats “reasonable cause” as a facts-and-circumstances question. Common accepted narratives:
- Lack of awareness in a situation where awareness wasn’t reasonably expected. Classic for first-year non-US founders who formed through an online service and had no US-tax adviser surface the 5472.
- Reliance on competent professional advice that turned out to be wrong. Needs to be documentable — emails from the adviser, engagement letter.
- Serious illness, death, or extraordinary personal circumstances during the filing window.
- Fire, casualty, natural disaster, or similar event preventing filing.
What the IRS rejects
- “I was busy.”
- “The rules were confusing.”
- “I didn’t know.”
- Any argument that doesn’t tie to specific documented facts.
How we build a reasonable-cause memo
A BorderFile penalty-abatement memo includes:
- A chronology — exactly what you knew, when, and from whom.
- Documentation references — adviser emails, formation records, correspondence.
- The specific “ordinary business care and prudence” standard applied to the facts.
- A statement of corrective action — how the problem has been fixed going forward.
- An EA/CPA signature.
Timing
The abatement request accompanies the late filing, not after it. “File first, apologise later” is the pattern — the voluntary filing with a reasoned memo is materially better-received than a filing forced by an IRS notice.
See also: First-Time Abatement, Form 5472.