A partnership or S corporation that missed the extended September 15 filing deadline does not have an open-ended grace period. The penalty clock starts immediately, and what happens next depends on decisions made in the following weeks.
Tax compliance is not a once-a-year event, and a missed filing deadline shows that clearly. The return still has to be filed, a penalty notice follows on a predictable schedule, and the relief options are not the same for every entity. Tax problems are easier to manage before the IRS process controls the timeline. If you want a practical review of your exposure, planning options, or IRS correspondence, speak with Steve Perry, EA. Call 678-717-9818, email steve@bookstaxesatl.com, or connect on LinkedIn at www.linkedin.com/in/steveperrybtm.
How the Penalty Notice Works
Partnerships and S corporations generally owe no tax at the entity level, but the failure to file penalty attached to Form 1065 and Form 1120-S does not depend on tax owed. For returns due in 2026, the penalty is $255 per partner or shareholder, per month the return remains unfiled, up to 12 months. A four-owner entity that files two months late already faces a penalty of more than $2,000 before any owner’s individual tax situation is considered.
The IRS notifies the entity through a CP162A notice, which states the amount, explains why it was charged, and describes the options for disputing or requesting removal of the charge. It does not wait for the return to be filed before the penalty starts accruing, and the amount grows every month the return sits unfiled.
Filing First Is Not Optional
Before any relief request makes sense, the return itself has to be filed. Every additional month between the extended deadline and the date the return is filed adds another $255 per owner to the eventual penalty, up to the 12-month cap. Waiting to file until a relief strategy is worked out only makes the number the relief request has to address larger. Before assuming the situation is settled, consider having Steve Perry, EA evaluate your records, IRS risk, and planning opportunities. Call 678-717-9818, email steve@bookstaxesatl.com, or connect on LinkedIn at www.linkedin.com/in/steveperrybtm.
Relief Options Are Not the Same for Every Entity
Once the return is filed and the CP162A notice arrives, the available relief depends on entity type. Treating partnerships and S corporations as interchangeable at this stage is a common and costly assumption.
A small partnership with 10 or fewer partners may qualify for a waiver under Revenue Procedure 84-35 if every partner was a natural person other than a nonresident alien, or the estate of one, each partner’s share of every item was proportionate to every other item, the partnership did not elect into the centralized audit regime, and all partners reported their share of income on timely filed returns. Where met, the partnership can return the notice with a signed statement asserting the relief rather than building a reasonable cause case from scratch.
Partnerships also benefit from a more recent development. Beginning with 2025 tax year returns, the IRS is phasing in an automatic exemption from certain penalties for Form 1065 filers who filed and paid on time for the prior three years. Where the compliance history qualifies, the penalty is not assessed in the first place, without a phone call or written request.
Form 1120-S does not currently appear on that automatic exemption list. An S corporation with an otherwise clean compliance history does not receive the same automatic treatment, and relief still generally requires contacting the IRS directly, either to request first time abatement based on a clean three-year history, or to submit a written explanation showing reasonable cause for the late filing. If IRS notices, unpaid balances, missing records, or planning gaps are starting to create concern, speak with Steve Perry, EA before the problem becomes harder to control. Call 678-717-9818, email steve@bookstaxesatl.com, or connect on LinkedIn at www.linkedin.com/in/steveperrybtm.
Why Assuming Automatic Relief Is a Risk
An owner who assumes the penalty will simply be waived because the entity has always filed on time is making a reasonable guess about a system that no longer treats every entity type the same way. That assumption may hold for a qualifying partnership. It does not currently hold for an S corporation, where the notice generally requires a response within the time frame it specifies.
Delaying that response does not preserve the option to request relief later on the same terms. Documentation supporting first time abatement, such as confirmation of the filing history for the prior three years, or supporting a reasonable cause explanation, is easier to gather immediately after the notice arrives than months later once the facts have to be reconstructed.
Common Mistakes After a Missed Filing Deadline
Several assumptions increase risk once the extended deadline has passed:
- Assuming the entity owes no penalty because it owes no tax at the entity level
- Assuming a partnership’s relief options, such as Rev. Proc. 84-35 or the automatic exemption, apply equally to an S corporation
- Delaying the response to a CP162A notice while deciding whether to contest it
- Waiting to file the return until a relief strategy is finalized, allowing the per month penalty to keep accruing
- Failing to confirm whether the partnership’s ownership structure meets the small partnership relief conditions before relying on it
Other issues may arise depending on the specific facts and circumstances of the entity and its owners.
Managing the Notice as Part of a Continuous Process
A missed extended deadline is not resolved simply by eventually filing the return. The penalty accrues monthly until filed, the CP162A notice sets specific terms for relief, and the path forward depends on entity type rather than a general sense that the business has a good filing history. Good tax outcomes come from managing the year before the IRS forces the issue. For help reviewing your next steps, speak with Steve Perry, EA. Call 678-717-9818, email steve@bookstaxesatl.com, or connect on LinkedIn at www.linkedin.com/in/steveperrybtm.
Frequently Asked Questions
Does a partnership or S corporation owe a penalty for filing late even if it owes no tax?
Yes. The failure to file penalty for Form 1065 and Form 1120-S is calculated per partner or shareholder, per month the return is late, up to 12 months, independent of any tax owed by the entity.
What is a CP162A notice?
The notice the IRS sends to inform a partnership or S corporation that a penalty has been charged for filing late or failing to file electronically as required. It states the amount and the options for disputing or requesting removal of the charge.
Do partnerships and S corporations have the same options for penalty relief?
Not currently. A qualifying small partnership may use Revenue Procedure 84-35 or benefit from an automatic exemption phasing in for 2025 and later returns. Form 1120-S is not on the current list of returns covered by that automatic exemption, so an S corporation generally needs to request relief directly.
Does filing before the notice arrives reduce the penalty?
Filing sooner limits how many months the penalty accrues, since it is calculated by the number of months the return remains unfiled, up to 12 months.
What happens if the CP162A notice is not answered in time?
Consequences depend on the entity’s situation, but delaying generally narrows the options available and makes documentation harder to assemble. There may be additional considerations depending on the facts and circumstances.
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