Prior to making a formal demand, it is essential that the relevance of the request be examined. The Failure to Provide Information Penalty should be assessed in cases where the formal demand is refused or ignored. Audit recommendations based upon a lack of taxpayer cooperation, or refusal to furnish information, will not be accepted if the requests for information are not documented in writing to the taxpayer. Penalties will be assessed unless it is shown there was reasonable cause for the failure to provide information.
Reasonable cause requires the taxpayer to exercise ordinary business care and prudence.
If a taxpayer has exercised such ordinary care and prudence and is nevertheless unable to provide the information, then the failure is due to reasonable cause. Auditors must use their judgment when determining the applicability of the Failure to Provide Information Penalty, and, if necessary, seek guidance on the matter.