Robert Loe CPA

Penalties Related to Late Filing of Form 1120S and Form 1065

There are many reasons why a tax return is filed late. Regardless, there is one constant that can be identified in the process of filing either Form 1120S or Form 1065 late: penalties and interest.

So what are the costs tied to penalties and interest in filing one of these Forms late? Let’s break it down.

Form 1120S:

If the corporation receives a notice about penalties after it files its return, send the IRS an explanation and they will determine if the corporation meets reasonable-cause criteria. Don’t attach an explanation when the corporation’s return is filed.

Interest.
Interest is charged on taxes paid late even if an extension of time to file is granted. Interest is also charged on penalties imposed for failure to file, negligence, fraud, substantial valuation misstatements, substantial understatements of tax, and reportable transaction understatements from the due date (including extensions) to the date of payment. The interest charge is figured at a rate determined under section 6621.
Late filing of return.
A penalty may be charged if the return is filed after the due date (including extensions) or the return doesn’t show all the information required, unless each failure is due to reasonable cause. For returns on which no tax is due, the penalty is $195 for each month or part of a month (up to 12 months) the return is late or doesn’t include the required information, multiplied by the total number of persons who were shareholders in the corporation during any part of the corporation’s tax year for which the return is due. If tax is due, the penalty is the amount stated above plus 5% of the unpaid tax for each month or part of a month the return is late, up to a maximum of 25% of the unpaid tax. The minimum penalty for a return that is more than 60 days late is the smaller of the tax due or $135.
Late payment of tax.
A corporation that doesn’t pay the tax when due generally may be penalized ½ of 1% of the unpaid tax for each month or part of a month the tax isn’t paid, up to a maximum of 25% of the unpaid tax. The penalty won’t be imposed if the corporation can show that the failure to pay on time was due to reasonable cause.
Failure to furnish information timely.
 For each failure to furnish Schedule K-1 to a shareholder when due and each failure to include on Schedule K-1 all the information required to be shown (or the inclusion of incorrect information), a $260 penalty may be imposed with respect to each Schedule K-1 for which a failure occurs. If the requirement to report correct information is intentionally disregarded, each $260 penalty is increased to $520 or, if greater, 10% of the aggregate amount of items required to be reported. See sections 6722 and 6724 for more information.  The penalty won’t be imposed if the corporation can show that not furnishing information timely was due to reasonable cause

Form 1065:

Late Filing of Return

A penalty is assessed against the partnership if it is required to file a partnership return and it (a) fails to file the return by the due date, including extensions or (b) files a return that fails to show all the information required, unless such failure is due to reasonable cause. The penalty is $195 for each month or part of a month (for a maximum of 12 months) the failure continues, multiplied by the total number of persons who were partners in the partnership during any part of the partnership’s tax year for which the return is due. If the partnership receives a notice about a penalty after it files the return, the partnership may send the IRS an explanation and the Service will determine if the explanation meets reasonable-cause criteria. Do not attach an explanation when filing the return.

Failure To Furnish Information Timely

For each failure to furnish Schedule K-1 to a partner when due and each failure to include on Schedule K-1 all the information required to be shown (or the inclusion of incorrect information), a $260 penalty may be imposed for each Schedule K-1 for which a failure occurs. The maximum penalty is $3,178,500 for all such failures during a calendar year. If the requirement to report correct information is intentionally disregarded, each $260 penalty is increased to $520 or, if greater, 10% of the aggregate amount of items required to be reported, and the $3,178,500 maximum doesn’t apply.
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