IRS CP162 Notice: Partnership / S-Corp Late Filing Penalty
A CP162 notice charges a penalty because a partnership (Form 1065) or S corporation (Form 1120-S) return was filed late, was incomplete, or wasn't e-filed when required — the penalty runs per partner or shareholder, per month, for up to 12 months.
Deadline calculator
The CP162 clock runs from the date printed on the notice — not the day you opened it.
Estimate only, based on the standard 21-day CP162 window. Your notice controls — always use the specific date printed on it.
What a CP162 actually means
The math is what makes CP162 penalties shocking: the IRS charges an inflation-adjusted amount (over $200) for each partner or shareholder, for each month or part of a month the return was late, up to 12 months. A three-partner LLC that files its 1065 four months late is looking at a penalty north of $2,500 — on a return that often shows no tax due at all, since partnerships and S-corps pass income through to their owners.
The good news: this is among the most abatable penalties the IRS assesses. First-time abatement wipes it if the entity has a clean three-year filing history. Small partnerships (10 or fewer individual or estate partners) have a long-standing IRS relief position when all partners reported their shares on timely personal returns. And reasonable cause — illness, records destroyed, reliance on a preparer who dropped the ball — is argued successfully every day. Paying a CP162 without at least requesting abatement is leaving money on the table.
How to recognize a real CP162
IRS business processing sends it to charge a pass-through entity a penalty. On the IRS's sample, there are two possible charges on a partnership return: one for filing late and a separate one for not filing electronically when required.
- The upper-right box shows a Tax period in YYYYMM format and an Employer ID number, not an SSN.
- The Billing Summary can have two separate lines: "Penalty for failure to file partnership return" and "Penalty for failure to file partnership return electronically." You may have one or both.
- Page 2 has a penalty table with the filing due date, months late, the per-partner amount, the number of partners, and the total. That's where you check the IRS's partner count and month count.
- A section headed "Revenue Procedure 84-35" lists the conditions for small-partnership relief. It tells you that you can return the notice with a statement, signed under penalty of perjury, that you qualify.
- Another section explains how to request a waiver of the e-file requirement if electronic filing would cause hardship.
What to do, step by step
- 1Confirm the facts: when the return was actually filed (or e-file accepted), how many partners/shareholders the IRS counted, and how many months it's charging.
- 2If the return still hasn't been filed, file it now — the penalty grows every month until it caps at 12.
- 3Check first-time abatement: if the entity filed and paid cleanly for the prior three years, one call or letter can remove the entire penalty.
- 4For small partnerships, invoke the small-partnership relief position if all partners timely reported their shares of income on their own returns.
- 5Otherwise, request reasonable-cause abatement in writing with documentation — and going forward, file an extension (Form 7004) by the deadline, which makes this penalty impossible.
Illustrative example
Example: a three-partner LLC uses Rev. Proc. 84-35
Three friends (illustrative people, not real clients) run a small rental LLC taxed as a partnership. Their bookkeeper left, and the Form 1065 went in two months late. The CP162 penalty table listed 3 partners and 2 months late, with a penalty total in the four figures, even though the partnership owed no tax itself.
They went through the Rev. Proc. 84-35 list printed on the notice. They had no more than 10 partners, all were U.S. individuals, each partner's share of every item was identical, and they hadn't elected the centralized audit rules. Most important, all three had reported their K-1 income on timely filed personal returns. They returned the notice with a statement signed under penalty of perjury saying the partnership qualified.
The penalty was removed. The notice warns that this relief can be reversed, and a false-statement penalty can apply, if the statement later proves materially untrue. So each partner kept a copy of their timely personal return showing the K-1 income.
Names and numbers are made up to show how this notice typically plays out.
Mistakes that make a CP162 worse
- Missing which penalty you were charged. The late-filing line and the e-file line are separate, have different defenses, and are figured differently.
- Claiming Rev. Proc. 84-35 relief when one of its conditions fails, such as unequal allocations between partners or a partner who filed a personal return late. The relief can be revoked, and false statements carry their own penalty.
- Not checking the partner and month counts in the penalty table. The total is a multiplication, so an overcount of either one inflates it.
- For an e-file penalty, not calling the number on the notice when you had a waiver or were below the e-file threshold for that year. The IRS's CP162 page lists those as the situations where the charge may be wrong.
- Leaving the return unfiled. The sample notice says the late-filing penalty keeps increasing each month until you file or until 12 months from the due date.
What happens if you ignore a CP162
If the penalty isn't paid in full by the date on the notice, the IRS says it will charge interest from the notice date until the balance is paid. If the return is still unfiled, the late-filing penalty also keeps growing each month, up to the 12-month cap.
Common questions
How much is the CP162 penalty?+
An inflation-adjusted amount per partner or shareholder (over $200 as of recent years) multiplied by each month or partial month late, capped at 12 months. The count multiplies fast: five owners × six months late is thirty penalty units. The exact per-unit figure for your year is printed on the notice.
The partnership owed no tax — why is there a penalty at all?+
The late-filing penalty for pass-through entities is based on the failure to file the information return, not on tax due. The IRS's position is that late 1065s and 1120-S returns delay everyone's K-1s and personal filings. That's also why the penalty is charged per owner.
How do I get a CP162 penalty removed?+
Three routes, in order of ease: first-time abatement (clean compliance history for the prior three years — often granted with one phone call); small-partnership relief (10 or fewer qualifying partners who all timely reported their shares); and reasonable cause (a written explanation with documentation showing ordinary business care). Don't pay first — abatement is easier to get than a refund.
What if my return was on time but the IRS says it wasn't?+
Prove it: e-file acceptance confirmation, certified-mail receipt, or postmark records. Respond to the notice with the proof — timely-mailing rules mean a return postmarked by the deadline is timely even if the IRS processed it weeks later.
Checked against IRS primary sources — see how we source these guides. You can verify any notice directly at IRS.gov. The dates and instructions printed on your specific notice always control. Official IRS explanation: Understanding your CP162 notice (IRS.gov).
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