Reasonable Cause and Not Willful Neglect

(1) Section 4962 doesn’t define reasonable cause or willful neglect. However, Treas.

Reg. 53.4958-1(d)(6) defines “due to reasonable cause” as exercising responsibility on behalf of the organization with “ordinary business care and prudence." See Treas. Reg. 53.4941(a)-1(b)(5), 301.6651-1(c) and United States v. Boyle, 469 U.S. 241 (1985). Determining "reasonable cause" requires a consideration of all the facts and circumstances. See Treas. Reg. Section 301.6651-1(c).

(2) “Not willful neglect" means that the receipt of the excess benefit wasn’t due to the

disqualified person’s consciousness, intention, or voluntary failure to comply with Section 4958, and that the noncompliance wasn’t due to conscious indifference. See Treas. Reg. 53.4958-1(d)(5) and 53.4941(a)-1(b)(4).

a. An act is "willful" if it’s "voluntary, conscious, and intentional." See Treas.

Reg. 53.4958-1(d)(5) and 53.4941(a)-1(b)(4).

b. "Negligence" includes any failure to make a reasonable attempt to comply

with the law. See Section 6662(c).

c. "Willful neglect" implies failure to exercise the care a reasonable person

would observe under the circumstances to see that the standards were observed despite knowledge of the standards or rules in question.

(3) In United States v. Boyle, 469 U.S. 241 (1985), the Supreme Court stated that the

term "willful neglect" means "a conscious, intentional failure or reckless indifference."

Note: Establishing that the disqualified person didn’t know that the excess benefit violated Section 4958 doesn’t establish the transaction was not due to willful neglect. Additionally, it does not establish that the transaction was due to reasonable cause. The burden of proof is on the taxpayer to demonstrate that they’ve established the transaction was due to reasonable cause and not willful neglect. The disqualified person must provide a detailed written explanation.