Economic Hardship

• If you have lost your job or are otherwise having difficulty making ends meet, a situation that many taxpayers find themselves in, they are adequate reasons for the IRS to remove penalties. They will not remove any tax due or accumulated interest charges, and reasonable payment arrangements must be made to address the remaining balance.
  
  

Health Problems

• If you've had heart-bypass surgery, for example, and have had to delay many day-to-day responsibilities that can be so easy to take for granted, the IRS considers that a reasonable explanation. More chronic health issues, such as ongoing dialysis treatments or chemotherapy, are also sufficient cause for the IRS to remove penalties.
  
  

Loss of Financial Records

• Fire, flood and earthquake are examples of natural disasters that may cause a loss of financial records. This involves calling banks for copies of checking, savings and credit-card statements, getting medical records for Schedule A deductions, retrieving dividend information for Schedule B, reconstructing all business expenses for sole proprietors and business owners for Schedule C, and more. Another circumstance may be the loss of computer records due to theft, which often involves the same kind of painstaking reconstruction of records, a process that can take many months.
  
  

Family Member's Death

• Your spouse may be the one who keeps all records and files tax returns, a process that may be as foreign to you as an unknown language. If that person dies, you must find a way to gather all records, seek help from another family member or a professional, and become familiar with a process that you may never have had to confront.
  
  

Erroneous Advice

• If you can show that the advice you received from an accountant or from someone at the IRS was incorrect and led to underpayment, they will remove any associated penalties. You should be able to rely on professionals for accurate advice, and many accountants and national firms will pay those penalties and associated interest if the IRS will not remove them.