It doesn't seem at all unusual that having reasonable cause for only part, but not all, of a period of delinquency causes the penalty to be applied for the entire late period.
These situations also don’t seem unusual or unreasonable either:
1. We have reasonable cause for 6-months, but not for 1-month. Therefore, we should be charged a penalty for 1-month.
2. We have reasonable cause for 6-months, but not for 1-month. Therefore, since we exhibited reasonable cause for the preponderance of the 7-month period, no penalty should be imposed at all.
The IRS charged the failure-to-pay penalty based on the original due date, not the date when the reasonable cause "expired"
That is just what the IRS did, based on their own interpretation, and how they programmed their computers.
IRC 6651(a)(2) supports this as well, the way the reasonable cause exception is worded makes it an all-or-nothing proposition.
You hit the nail on the head here in terms of the question being posed: Is it an all-or-none proposition? A further question would be: If it really is an all-or-none proposition, why can’t we win if we exhibited reasonable cause for the preponderance of the period at issue?
Here’s an expanded version of the Code language:
…unless it is shown that such failure is due to reasonable cause and not due to willful neglect, there shall be added to the amount shown as tax on such return 0.5 percent of the amount of such tax if the failure is for not more than 1 month, with an additional 0.5 percent for each additional month or fraction thereof during which such failure continues, not exceeding 25 percent in the aggregate;The Code says, “such failure” and “the failure” and “such failure continues.” The one failure is paying late. Stated differently, the one failure is not paying on time. So, if we ask ourselves these questions: Do we have one failure for Month A, and then another separate failure for Month B, and then another separate failure for Month C? Or, do we have a single failure, that is continuing in nature, that spans all of these months?...I would have to agree that we have a single, continuous failure.
But…does that fact – the fact that we have one, continuous failure - truly make it an all-or-nothing proposition? And if so, does *not* exhibiting reasonable cause for any part of the overall period cause a full penalty to be assessed, starting on 4/15/18?
The Code doesn’t really imply an “all or none” proposition. The Code merely implies (if not overtly states), that we have a single failure in the case of late payment. But I would agree that if we have a single failure, over a single timeframe, consistency (and logic) would dictate that we test our behavior over that entire timeframe. But I can’t say I agree that the Code calls for an “all or none” decision to be made. The Code simply says…”unless it is shown that such failure is due to reasonable cause.” Remember, the failure is a continuous one – not paying on time. Well, if we are testing one failure over a period of time, it is certainly conceivable that reasonable cause is shown for part of that period (i.e. part of the continuous failure) and reasonable cause isn’t shown for a different part of that period (i.e. a different part of the continuous failure).
But where do we go from here?
Here’s where the IRS would go: Item #1: One failure. Item #2: One period tested. Item #3A: So we draw one “all or none” conclusion. Item #3B: And in coming to that conclusion, the operative principle is that if reasonable cause did not exist at any point in the timeline, the taxpayer loses in full.
Reasonable minds might agree with Item #1 and Item #2…but I’m not so sure about Items #3A and #3B. I find no statutory or regulatory basis for the IRS’ positions with respect to these two Items.
Since we have one failure that spans a certain time period, it sure seems we could have reasonable cause for part of that time period/part of that one failure.