S Corporation and Partnership Late-Filing Penalty

Partnerships and S corporations usually do not pay income tax themselves. Their owners do. Even so, the entity has to file an annual return so the IRS can see how income was divided, and the IRS enforces that deadline with a penalty that grows with the number of owners. Because the penalty is per owner and per month, a late return for a company with several owners can cost more than a late individual return with a similar amount of tax. This page explains the penalty for Forms 1065 and 1120-S and how to deal with it.

Who is covered

The penalty applies to domestic partnerships filing Form 1065 and to S corporations filing Form 1120-S. The IRS failure-to-file page also lists Forms 1066 and 8985. The due date for both is the 15th day of the third month after the end of the tax year. For a calendar-year 2025 return that date was March 16, 2026, because March 15 fell on a Sunday. Form 7004 asks for an extension and must be filed by the regular due date. Details are in our guides to S corporation taxes and partnership taxes.

How the penalty is calculated

The formula is:

Penalty = monthly amount × number of months late (maximum 12) × number of partners or shareholders

The IRS counts every person who was a partner or shareholder at any time during the tax year, not only those at the end. A partial month counts as a full month.

The amount is adjusted over time and is based on the due date of the return. No minimum penalty applies to these returns, and the monthly amount does not depend on how much income the entity earned.

Example (hypothetical). An S corporation with three shareholders files its 2025 return four months late. The penalty is $255 × 4 months × 3 shareholders, or $3,060. A partnership with 12 partners that files two months late would owe $255 × 2 × 12, or $6,120. If either entity waited 14 months, the penalty would stop at 12 months of charges.

If the S corporation itself owes tax, the instructions say the penalty also includes 5% of the unpaid tax per month, up to 25%, and the ordinary failure-to-pay penalty can apply as well. See our failure-to-file penalty page.

Schedule K-1 penalties

An entity must give each owner a Schedule K-1 by the return due date. The IRS instructions for both forms list a separate penalty for each Schedule K-1 that is late, missing or incorrect. For returns due in 2026 the penalty is $340 per schedule. If the failure is due to intentional disregard, the penalty is $680 per schedule or, if greater, 10% of the amounts that should have been reported, with no limit. The partnership instructions also give annual maximums of $4,098,500 for entities with gross receipts over $5 million and $1,366,000 for others. These track the information return penalties; see information return penalties.

Small partnership relief

The IRS says it presumes reasonable cause for a partnership with 10 or fewer partners if all partners are eligible persons under Revenue Procedure 84-35 and each partner timely reported their share of the partnership's income, deductions and credits on their own return. The IRS page does not extend that presumption to S corporations. A partnership relying on it should document the partners' filings.

How to avoid it

• File Form 7004 before the due date if the return cannot be finished. The extension applies to filing, not to any tax the entity must pay.
• File a complete return. A return missing required information is treated like a late one.
• Send Schedules K-1 to the owners on time, because they need the information for their own returns.
• If a new owner joins or leaves during the year, count that person in your planning because the penalty counts everyone who was an owner for any part of the year.

Asking for relief

The penalty is not imposed if the entity shows reasonable cause. The instructions say that if the entity receives a penalty notice after filing, it should send the IRS an explanation. They tell you not to attach the explanation to the return itself. The page on reasonable cause penalty relief lists examples the IRS recognizes.

First-time penalty abatement covers these penalties under sections 6698(a)(1) and 6699(a)(1) for entities with three years of timely filing. The IRS's automatic exemption lists Forms 1040, 1065 and 1120 as eligible returns and does not name Form 1120-S. An S corporation should plan to ask for first-time abatement rather than wait for an automatic exemption. Call the number on the notice or send a written request. Our guide on how to request penalty abatement covers the process.

How we can help

We prepare Forms 1065 and 1120-S, track extension deadlines for all returns we prepare, and can respond to a late-filing penalty notice with a reasonable-cause or first-time abatement request. If you also need to form or restructure the entity, see our business formation work. We cannot promise the IRS will remove a penalty, and each entity's facts are different.

See business tax preparation or contact us.

Frequently asked questions

General information only, not tax, legal or accounting advice for your situation. Rules, limits and deadlines change; confirm the current rules with the official source or a qualified professional before you act. Reading this page does not create a professional relationship with CPA Tax Payroll and Accounting Corp.