If your partnership misses the Form 1065 deadline, the penalty for not filing Form 1065 is $245 for each partner for every month (or partial month) the return is late, running up to 12 months. That charge applies even though the partnership itself owes no income tax, and it stacks with a separate penalty for late or missing Schedule K-1s. A five-partner firm that files three months late is looking at $3,675 before the K-1 penalties are added.
How the Per-Partner Monthly Penalty Works
The charge comes from Internal Revenue Code Section 6698. The IRS assesses $245 per partner for each month or fraction of a month the return is late, for a maximum of 12 months.1Office of the Law Revision Counsel. 26 U.S. Code 6698 – Failure to File Partnership Return2Internal Revenue Service. Information About Your Notice, Penalty and Interest The $245 amount is the inflation-adjusted figure for returns due in 2026. Per partner, the ceiling is $2,940. A 10-partner firm that never files reaches $29,400 under this provision alone.
“Partner” here means anyone who held an interest at any point during the tax year, not only those on the books at year-end. Someone who joined in January and left in March still counts toward the multiplier.
An Incomplete Return Counts as No Return
Filing a Form 1065 that leaves out information required under IRC 6031, such as partner allocations or financial details, is treated the same as not filing. The IRS can assess the full per-partner, per-month penalty against a skeleton return submitted just to stop the clock.1Office of the Law Revision Counsel. 26 U.S. Code 6698 – Failure to File Partnership Return
Never Filing Leaves the Assessment Window Open Forever
If you file late, the IRS generally has three years from the filing date to assess. If the partnership never files, that clock never starts, and the agency can assess penalties indefinitely.3Internal Revenue Service. 20.1.2 Failure To File/Failure To Pay Penalties
The Schedule K-1 Penalty That Stacks On Top
Partnerships must furnish each partner a Schedule K-1 by the same due date as Form 1065.4Office of the Law Revision Counsel. 26 USC 6031 – Return of Partnership Income Missing that deadline, or delivering K-1s with wrong information, triggers a separate penalty under IRC 6722. The statutory base is $250 per K-1, adjusted annually; recent years have run roughly $310 to $340 per statement.5Office of the Law Revision Counsel. 26 USC 6722 – Failure to Furnish Correct Payee Statements
Correcting K-1s quickly reduces the charge. A fix within 30 days of the furnishing deadline drops the penalty to $60 per statement; a fix after 30 days but before August 1 carries $130 per statement, both inflation-adjusted.6Internal Revenue Service. Rev. Proc. 2025-32
If the IRS finds the failure was intentional, the numbers change dramatically. For intentional disregard, the per-K-1 penalty is the greater of roughly $690 (inflation-adjusted) or 10% of the amounts that should have been reported, with no annual cap.5Office of the Law Revision Counsel. 26 USC 6722 – Failure to Furnish Correct Payee Statements
What the Combined Bill Actually Looks Like
The 6698 late-filing charge and the 6722 K-1 charge are assessed independently. Using $245 per partner and a conservative $310 per K-1:
A four-partner firm four months late: $245 × 4 × 4 = $3,920 for the late filing, plus $310 × 4 = $1,240 for the K-1s. Total $5,160.
A 10-partner firm six months late: $245 × 10 × 6 = $14,700 for the late filing, plus $310 × 10 = $3,100 for the K-1s. Total $17,800.
Every additional month adds $245 per partner. The bill scales linearly on two axes, so a small partnership that lets things drift can reach five figures without much effort.
Automatic Relief for Small Partnerships
Under Revenue Procedure 84-35, the IRS will presume reasonable cause and waive the late-filing penalty if the partnership meets all of the following:7Internal Revenue Service. Understanding Your CP162B Notice
- Ten or fewer partners, with a married couple filing jointly counting as one.
- All partners are individuals. No corporations, LLCs, trusts, or other entities can be partners, though estates of individuals qualify.
- Every partner’s share of income, deductions, and credits is allocated in the same proportion across the board.
- Each partner timely filed a personal return that reported their share of partnership items.
To claim the waiver, respond to the IRS penalty notice with a signed statement, under penalty of perjury, confirming eligibility under Rev. Proc. 84-35.7Internal Revenue Service. Understanding Your CP162B Notice Check this first. It’s the cleanest path out for a typical small partnership.
First-Time Abatement and Reasonable Cause
If Rev. Proc. 84-35 doesn’t fit, two other paths remain.
First-Time Abatement
Partnerships with a clean record for the prior three tax years, meaning all required returns filed (or validly extended) and no penalties assessed in that window, can request First-Time Abatement. The IRC 6698 partnership late-filing penalty is expressly eligible.8Internal Revenue Service. Administrative Penalty Relief Call the number on the notice; the representative can review eligibility on the call. You can also submit a written request or file Form 843.9Internal Revenue Service. About Form 843, Claim for Refund and Request for Abatement
Reasonable Cause
Reasonable cause requires showing the partnership exercised ordinary business care and still could not file on time. Serious illness or death of the partner responsible for the return, a natural disaster that destroyed records, and similar events beyond the partnership’s control are the kinds of circumstances the IRS considers.10Internal Revenue Service. Penalty Relief for Reasonable Cause
What generally fails: blaming the tax preparer, claiming ignorance of the filing requirement, or pointing out that the partnership had no income. Requests that succeed explain what happened, when, and what the partnership did to comply despite the obstacle, backed by documents such as hospital records, disaster declarations, or estate correspondence.10Internal Revenue Service. Penalty Relief for Reasonable Cause
Extending the Deadline Before It Passes
For calendar-year partnerships, the 2026 due date is March 16, 2026 (March 15 falls on a Sunday). Filing Form 7004 before that date grants an automatic six-month extension to September 15, 2026, with no explanation required.11Internal Revenue Service. About Form 7004, Application for Automatic Extension of Time to File Certain Business Income Tax, Information, and Other Returns The extension covers the K-1 furnishing deadline as well, since K-1s are due when the return is due, including extensions.4Office of the Law Revision Counsel. 26 USC 6031 – Return of Partnership Income The form is free and takes minutes.
When Not Filing Becomes a Crime
Willful refusal to file a partnership return can be prosecuted as a misdemeanor under IRC 7203, which Section 6698 references as an additional penalty. A conviction carries a fine of up to $25,000 ($100,000 for corporate partners) and up to one year in prison.12Office of the Law Revision Counsel. 26 USC 7203 – Willful Failure to File Return, Supply Information, or Pay Tax Criminal cases against partnerships are rare and reserved for deliberate concealment of income or repeated, knowing refusals to file. “Willful” is the operative word: you knew the return was required and chose not to file it.