What is reasonable cause for an IRS penalty?

Reasonable cause is the main way to have a Form 5472 penalty removed: you show that the failure was due to reasonable cause and not to willful neglect.

What the IRS manual requires for Form 5472

IRM 20.1.9.5.5 says the reporting corporation "must make an affirmative showing of all the facts alleged as reasonable cause for the failure in a written statement containing a declaration that it was made under the penalties of perjury".

The same section adds two points that matter for founders abroad:

• Reasonable cause "will be applied liberally" to a small corporation (gross receipts of $20,000,000 or less) that did not know about the requirement, has limited presence in and contact with the United States, and complies promptly and fully with IRS requests.
• It should "not be considered for any year until all delinquent returns have been filed".

Timing

Generally, reasonable cause cannot extend beyond 90 days after the IRS notifies you of the failure, so the continuation penalty has no reasonable cause exception. Answer every notice by its deadline.

See also First-Time Abatement and the catch-up guide.