Reasonable-Cause Statements and Penalty Relief Require Separate Review

The practical answer

Explaining why a filing problem occurred is not the same as establishing that penalty relief applies. A useful review distinguishes the facts the entity can support, the statement procedure, and the separate decision the IRS may make under the relevant rules. Three details shape the review: Which facts can this entity substantiate? What declaration and supporting records are needed? Who determines whether reasonable cause supports relief?^{[1] [2]}

Scope and the records behind the answer

The discussion follows the entity, form and transaction conditions identified below. The same label on a different form can have a different purpose. Keep the relevant entity and reporting period visible while you compare the requirements, and treat each stated exception as part of the rule rather than an optional footnote.

Official sources checked: 2026-11-09. Annual tax-year forms and continuously revised forms are identified separately in the references.

A side-by-side preparation table

Work through the official requirements

Reasonable cause perjury statement

To assert reasonable cause, the reporting corporation affirmatively states in writing all facts relied on and includes a declaration under penalties of perjury. The IRS determines whether reasonable cause exists and the period to which it applies.^[1]

This applies when: Reasonable-cause treatment is being asserted for a section 6038A failure.

Keep this limit in view: Submitting a statement does not itself mean that penalty relief has been approved.

Reasonable cause case by case

Reasonable cause and good faith are evaluated case by case using all relevant facts. Reliance on an accountant, attorney or another professional does not necessarily establish them; that reliance must be reasonable under all the circumstances.^[1]

This applies when: The IRS is reviewing reasonable cause and good faith for a section 6038A failure.

Reasonable cause delinquent returns recommendation

For review of an initial Form 5472 penalty, the IRM recommends not considering reasonable cause for any year until all delinquent returns have been filed. This is an internal IRS review recommendation, and filing the returns does not guarantee relief.^[2]

This applies when: This concerns reasonable-cause review of an initial Form 5472 penalty.

Keep this limit in view: The IRM says recommended; do not rewrite this as an independent absolute statutory prerequisite or a condition that guarantees approval.

Continuing failure penalty

If failure continues more than 90 days after IRS notification, the instructions provide an additional $25,000 for each related party affected, for each subsequent 30-day period or fraction of a period during which failure continues.^{[3, p.3] [1]}

This applies when: The failure continues more than 90 days after IRS notification.

Keep this limit in view: Under Regulations section 1.6038A-4(b)(1), the 90-day period cannot begin earlier than the last day on which the IRS determines that reasonable cause existed. The IRS determines reasonable cause and its duration; making a request does not automatically stop the clock.

Cp215 assessment notice

The Form 5472 IRM procedure states that an assessment using MFT 13 and PRN 625 generates and sends a BMF CP 215 penalty notice. This is a post-assessment procedure.^[2]

This applies when: This concerns an MFT 13/PRN 625 assessment under IRM 20.1.9.5.2.

Keep this limit in view: Different processing routes may use different PRNs; this does not establish one identical notice code for every Form 5472 case.

Prn711 fta limited procedure

There is no general guaranteed first-time abatement for Form 5472. The IRM describes a limited procedure for an initial, system-assessed PRN 711 penalty on Form 5472 attached to a late Form 1120, linked to the related Form 1120's first-time-abatement eligibility and additional three-period conditions.^[2]

This applies when: Form 5472 was attached to a late Form 1120 and generated an initial system-assessed PRN 711 penalty. The associated Form 1120 late-filing penalty received first-time abatement under PRC 018, or no such penalty was assessed because tax was zero or fully paid but the return otherwise could have qualified for that abatement. There were no similar PRN 625/711 penalties in the preceding three periods. The associated Forms 1120 were not late in the preceding three periods.

Keep this limit in view: Do not generalize this procedure to all Form 5472 penalties, all foreign-owned DEs, continuing-failure penalties or other PRNs. The procedure says may be abated; applicable facts and IRS action are still required.

Continuation penalty notice clock

If the relevant failure continues more than 90 days after the IRS mails a failure notice, an additional $25,000 may apply for each affected related party for each 30-day period. A fraction of 30 days counts as a full period.^[1]

This applies when: The relevant failure continues more than 90 days after the IRS mails its notice. The amount here applies to tax years beginning on or after January 1, 2018.

Keep this limit in view: The relevant clock starts with the IRS mailing the failure notice; do not accrue this additional penalty directly from the original filing due date. Determine the reasonable-cause period and treatment of a second failure under Regulations section 1.6038A-4(b) and (d), respectively. Under Regulations section 1.6038A-4(b)(1), the 90-day period cannot begin earlier than the last day on which the IRS determines that reasonable cause existed. The IRS determines reasonable cause and its duration; making a request does not automatically stop the clock.

Initial penalty once related party year

The initial penalty is imposed only once for each related party and tax year, even if both filing and record-maintenance failures concern that same related party. Additional continuing-failure penalties follow their separate rules.^{[2] [1]}

This applies when: This concerns the initial penalty for the same related party and tax year.

Keep this limit in view: Do not extend the initial-penalty aggregation rule into an overall cap on continuing-failure penalties.

Penalty qualifying failures

For an applicable reporting corporation, failure to furnish section 6038A information at the prescribed time and in the prescribed manner, maintain required records, or satisfy the foreign-record requirements can trigger an initial $25,000 penalty per tax year, subject to the related-party rules.^{[1] [2]}

This applies when: An applicable section 6038A filing or recordkeeping obligation and a corresponding failure must exist. The $25,000 amount here applies to tax years beginning on or after January 1, 2018.

Keep this limit in view: Reasonable cause requires a separate review; do not describe the penalty as automatically and unconditionally applying to every LLC. The amount differs for tax years beginning before January 1, 2018.

An illustrative preparation scenario

In this hypothetical preparation example, a founder asks a preparer to attach a general explanation copied from another business's situation. The review instead gathers the entity's actual events and supporting documents, identifies what can be stated accurately, and keeps the relief decision separate from the act of assembling an explanation. The preparer checks three points: Which facts can this entity substantiate? What declaration and supporting records are needed? Who determines whether reasonable cause supports relief? The file remains a working comparison until the relevant facts and applicable instructions have been checked together. No agency outcome is assumed.^{[1] [2]}

Keep two files distinct when preparing a late return. The filing file identifies the entity, reporting period, relevant transactions, completed forms, and submission records. A possible reasonable-cause request needs its own factual chronology and evidence tied to each assertion. For example, if a statement describes when a problem was discovered, retain the notice or correspondence supporting that account, and distinguish recollection from documented events. If pursuing that request, check the statement procedure and declaration under penalties of perjury. Completing an overdue filing or collecting this evidence does not itself establish entitlement to relief, and the IRS evaluates reasonable cause under the applicable rules.^{[1] [2]}

This is a planning illustration, not a statement that a particular filing has been accepted or that an entity qualifies for a tax result. Use the source-backed distinctions above to decide what information still needs to be established before a form is completed.

A review sequence you can actually use

1. Which facts can this entity substantiate?
2. What declaration and supporting records are needed?
3. Who determines whether reasonable cause supports relief?

Write down the answer and the record that supports it, rather than marking a question complete because a field contains text. When two records disagree, identify whether the difference concerns the entity, an individual, the reporting period or the type of change. That makes the remaining question specific enough to resolve against the relevant instruction.

Keep the scope of a preparation service separate from the government requirement. A service intake question may gather information for a workflow; it does not create an exception, extend a deadline or determine whether a transaction is reportable. The cited government material remains the basis for those conclusions.

Questions to settle before moving forward

How should I check reasonable cause delinquent returns recommendation?

For review of an initial Form 5472 penalty, the IRM recommends not considering reasonable cause for any year until all delinquent returns have been filed. This is an internal IRS review recommendation, and filing the returns does not guarantee relief. This concerns reasonable-cause review of an initial Form 5472 penalty. The IRM says recommended; do not rewrite this as an independent absolute statutory prerequisite or a condition that guarantees approval.^[2]

How should I check continuing failure penalty?

If failure continues more than 90 days after IRS notification, the instructions provide an additional $25,000 for each related party affected, for each subsequent 30-day period or fraction of a period during which failure continues. The failure continues more than 90 days after IRS notification. Under Regulations section 1.6038A-4(b)(1), the 90-day period cannot begin earlier than the last day on which the IRS determines that reasonable cause existed. The IRS determines reasonable cause and its duration; making a request does not automatically stop the clock.^{[3, p.3] [1]}

How should I check cp215 assessment notice?

The Form 5472 IRM procedure states that an assessment using MFT 13 and PRN 625 generates and sends a BMF CP 215 penalty notice. This is a post-assessment procedure. This concerns an MFT 13/PRN 625 assessment under IRM 20.1.9.5.2. Different processing routes may use different PRNs; this does not establish one identical notice code for every Form 5472 case.^[2]

How should I check prn711 fta limited procedure?

There is no general guaranteed first-time abatement for Form 5472. The IRM describes a limited procedure for an initial, system-assessed PRN 711 penalty on Form 5472 attached to a late Form 1120, linked to the related Form 1120's first-time-abatement eligibility and additional three-period conditions. Form 5472 was attached to a late Form 1120 and generated an initial system-assessed PRN 711 penalty. The associated Form 1120 late-filing penalty received first-time abatement under PRC 018, or no such penalty was assessed because tax was zero or fully paid but the return otherwise could have qualified for that abatement. There were no similar PRN 625/711 penalties in the preceding three periods. The associated Forms 1120 were not late in the preceding three periods. Do not generalize this procedure to all Form 5472 penalties, all foreign-owned DEs, continuing-failure penalties or other PRNs. The procedure says may be abated; applicable facts and IRS action are still required.^[2]

Official sources and versions

1. 26 CFR 1.6038A-4 Monetary penalty for failure to furnish information or maintain records — 2026-11-05
2. Part 20. Penalty and Interest
3. Instructions for Form 5472 (Rev. December 2024) — Rev. December 2024

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