Late filing penalties for partnerships – how to make them go away

I’m working with a new client whose former CPA failed to file their partnership tax return on time – it actually escaped their notice until the next tax season came along the next year – consequently, this 2 person partnership was charged a $4,680 penalty ($195 per partner, per month, as long as it was unfiled).

YIKES you say (or maybe you used a different word). Never fear, though – Revenue Procedure 84-35 saves the day. Rev. Proc. 84-35 says that as long as the following apply:

Small partnership (fewer than 10 partners, all domestic)
Each partner has proportionate shares of income and expenses
All partners reported their share of income, deductions, and credits on their timely filed returns.

– the penalty will be waived.

So, I’ve written a letter to the IRS, and the penalty will be lifted.

One caveat – this relief is only available if all partners file their returns on time (by the extended due date), and include the partnership income. So, if you have one partner who fails to do this, then relief won’t be granted, and the penalty stays!

One conclusion – don’t automatically pay an IRS notice. The IRS is not always correct, they don’t always have complete information, and there is sometimes relief from penalty available.

You should talk to a CPA (like me, duh!), and see what your potential remedies are first.


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