Late Filing Penalty for 1120-S: Calculation, K-1s, and Abatement

The late filing penalty for Form 1120-S is $255 per shareholder for every month or partial month the return is overdue, capped at 12 months, and it applies even when the S corporation owes no federal tax.¹ A five-shareholder S corporation that files four months late owes $5,100 before interest or any other charge is added. The penalty exists to force the informational return in on time so shareholders can file their own returns from the Schedule K-1s.

How the Penalty Is Calculated

Three numbers drive the math under 26 U.S.C. § 6699: a fixed dollar amount, the number of shareholders at any point during the tax year, and the number of months the return sits unfiled.² The statutory base is $195, adjusted annually for inflation. For returns required to be filed in 2026, the figure is $255.¹

A calendar-year S corporation with three shareholders that files six months past its extended September 15 deadline owes:

$255 × 3 shareholders × 6 months = $4,590

The penalty caps at 12 months no matter how long the return remains outstanding.²

A partial month counts as a full month. That’s where the penalty stings first. If the same three-shareholder corporation filed just two days after its deadline, it would still owe $765 ($255 × 3 × 1). The clock doesn’t wait for the calendar to flip.

Zero Tax Owed Still Means the Full Penalty

Most S corporations don’t owe corporate-level tax. Income passes through to shareholders, so the entity itself typically shows a $0 balance. That has no effect on the § 6699 penalty, which enforces the filing of the informational return rather than the collection of tax.³ A corporation that lost money all year and owes nothing still gets billed the full $255 per shareholder per month.

Extra Charges When Tax Is Actually Owed

A few situations produce a real corporate tax bill on an S return, most commonly the built-in gains tax under § 1374 (when a former C corporation sells appreciated assets within the five-year recognition period)⁴ and the excess net passive income tax under § 1375.⁵

When corporate tax is owed and the return is late, the IRS adds 5% of the unpaid tax per month, capped at 25%, on top of the per-shareholder charge. Returns more than 60 days overdue trigger a minimum penalty of $525 or the full tax due, whichever is less, for the 2026 filing year.¹ A separate failure-to-pay penalty of 0.5% per month, also capped at 25%, runs alongside, with daily-compounding interest on top. When both the failure-to-file and failure-to-pay penalties hit the same month, the IRS reduces the failure-to-file amount by the failure-to-pay amount to avoid full double charging.⁶

Late Schedule K-1s Add a Separate Penalty

Filing 1120-S late also means the shareholders’ Schedule K-1s go out late. Under 26 U.S.C. § 6722, the IRS can penalize the corporation for failing to furnish correct payee statements on time. For statements due in 2026, the penalty is $340 per K-1 if the failure continues past August 1 of that year.⁷

Fixing it faster costs less. K-1s corrected within 30 days of the required furnishing date are $60 each; those corrected after 30 days but before August 1 are $130 each. If the IRS finds the failure was intentional, the penalty is $680 per K-1 with no annual cap.⁷

These K-1 penalties stack on top of the § 6699 late filing penalty. An S corporation with 10 shareholders that files months late faces $255 per shareholder per month for the late return plus $340 per K-1 for the late payee statements. The combined bill adds up fast.

Getting the Penalty Removed: First-Time Abatement

The most efficient path to relief is the IRS First-Time Abate program, an administrative waiver that doesn’t require proof of hardship. The IRS specifically lists S corporation late filing penalties under § 6699(a)(1) as eligible.⁸

To qualify, the S corporation must meet all three conditions:

It filed the same type of return (Form 1120-S) for the three tax years before the penalty year.
It received no penalties during those three prior years, or any earlier penalty was removed for a reason other than the FTA program itself.
All currently required returns have been filed or valid extensions are in place.

⁸

Call the number on your penalty notice to request it. The IRS can sometimes approve the abatement over the phone. If your corporation has never been hit with a late filing penalty, make this your first move before spending time on a written reasonable cause argument.

Getting the Penalty Removed: Reasonable Cause

If first-time abatement isn’t available, usually because a penalty landed in the prior three years, the fallback is reasonable cause. You have to show the corporation used ordinary care and prudence but still couldn’t file on time, and that the failure wasn’t due to willful neglect.⁹

The IRS decides these case by case. Circumstances it recognizes include:

Fires, natural disasters, or civil disturbances that destroyed records or blocked access to the business
Death, serious illness, or unavoidable absence of the person responsible for the corporation’s tax filings
Inability to obtain records needed to complete the return
System issues that delayed a timely electronic filing

⁹

For businesses, the IRS looks at whether the circumstances affected the specific person with authority to submit the return.⁹ A sole officer and shareholder hospitalized during filing season is compelling. An office manager out sick while the CEO could have filed is much weaker.

If the IRS can’t resolve the request by phone, submit it in writing on Form 843 with every piece of supporting documentation you can produce: hospital records, insurance claims, correspondence showing attempts to obtain records, FEMA disaster declarations. A vague letter about “difficulties” will be denied. A timeline backed by third-party documents has a real chance.

Forgetting the deadline, being too busy, or blaming a tax preparer who missed the date won’t qualify. The IRS has heard every version of those arguments, and none of them meets the ordinary-care-and-prudence standard.

State Penalties Are Separate

Everything above is federal. Many states impose their own late filing penalties on S corporations, ranging from flat fees around $100 to percentage-based charges tied to state tax due. A late federal return usually signals a late state return because the deadlines tend to align, so check your state tax agency directly. The combined federal and state exposure can significantly exceed what either government charges alone.

1
Internal Revenue Service. Instructions for Form 1120-S (2025)
2
Office of the Law Revision Counsel. 26 USC 6699 – Failure to File S Corporation Return
3
Internal Revenue Service. Failure to File Penalty – Section: S Corporation Returns (Form 1120-S)
4
Office of the Law Revision Counsel. 26 USC 1374 – Tax Imposed on Certain Built-in Gains
5
Office of the Law Revision Counsel. 26 USC 1375 – Tax Imposed When Passive Investment Income of Corporation Having Accumulated Earnings and Profits Exceeds 25 Percent of Gross Receipts
6
Internal Revenue Service. Failure to Pay Penalty
7
Internal Revenue Service. Information Return Penalties
8
Internal Revenue Service. Administrative Penalty Relief
9
Internal Revenue Service. Penalty Relief for Reasonable Cause