US Tax Filing

What a late 1120-S or 1065 really costs

A return with no tax on it can still generate a four-figure bill. The maths is simple and almost nobody knows it.

Two friends start a consulting LLC. They split the profit, each reports their half on their personal return in April, and everything is paid. In August a notice arrives: $2,550, for a return they did not know existed.

The return is Form 1065. The moment an LLC has two members it becomes a partnership for federal tax, and partnerships file their own information return in March, a month before the personal deadline, so each partner has a Schedule K-1 in time. The same applies to any LLC or corporation that elected S-corp status: Form 1120-S, same date, same penalty logic.

The arithmetic

The penalty is not a percentage of tax, because there is no tax on the return. It is a flat amount per owner, per month or part of a month, for up to twelve months: $255 for returns due in 2026. Two partners, five months late: 2 × 5 × $255 = $2,550. Four shareholders, twelve months: $12,240. The clock starts the day after the deadline (March 16, 2026 for calendar-year filers) and a return filed on the 17th is one month late.

It applies whether the business made $2 million or nothing. A dormant partnership that skipped its return is penalised at the same rate as an active one.

What the notice sequence looks like

The IRS usually writes a few months after the deadline, to the entity's address on file, which is often a registered agent or a formation address nobody checks. The first notice states the penalty and a payment date. If nothing happens, further notices follow and the balance is eventually pursued like any tax debt. Because the entity has no income tax account of its own, owners sometimes assume the letter is a mistake.

The two relief routes

First-time abatement. If the entity has filed and paid on time for the three previous years and has no other open penalties, the IRS waives the penalty on request, as an administrative matter. A new entity in its first or second year usually qualifies. It is one phone call or one letter.

Small partnership relief. Under Revenue Procedure 84-35, a partnership with ten or fewer partners who are all individuals (or estates), where every partner reported their share on time, is treated as having reasonable cause for a late 1065. It does not apply to S-corps.

Beyond those, reasonable cause: a specific, dated account of what prevented filing, with evidence. "We did not know" is not reasonable cause on its own, though for a first-year entity it is often accepted when combined with prompt filing once discovered.

Why the date is a month early

So partners and shareholders receive their K-1s before their own April 15 deadline. Miss March and the owners either extend their personal returns or file without the K-1 and amend later. Either way the late 1065 is the root cause.

The check you can run today

If your LLC has more than one member, or you filed Form 2553 at any point, look for a 1065 or 1120-S for last year. If there is not one, file it now: the penalty stops the day it is filed, and the relief request goes in with it.

Questions this raises

Does an extension stop the penalty?

Form 7004 filed by March 16 extends the filing date to September 15 with no penalty for that period. It has to be filed by the original date; a late extension does nothing.

We converted from a single-member to a two-member LLC mid-year. What do we file?

Two short-year returns: a final Schedule C period for the single-member part and a Form 1065 from the date the second member joined. The partnership return is due on the normal March date.

What does it cost to have you file a late 1065?

From $99 per return, with the relief request prepared alongside. Late years are quoted per year in writing before we start.

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