Late Filing Penalties When No Tax is Due

Late Filing Penalties When No Tax is Due

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There are no more extensions.

In addition to previously extended corporate (1120) and trust (1041) tax returns, S Corporation (1120S) and partnership (1065) tax returns are due today.

Most IRS late filing penalties are calculated as a percentage of the unpaid tax shown on the return.

But S Corporations and partnerships don’t pay tax so does that mean taxpayers can file those tax returns late without penalty?

No.

Here’s the IRS rule for S Corporation returns:

If no tax is due, the late filing penalty for returns required to be filed after 2008 [is] $89 for each month or part of a month (up to 12 months) the return is late or does not include the required information, multiplied by the total number of persons who were shareholders in the corporation during any part of the corporation’s tax year. The penalty… also applies if tax is due.

And here’s the rule for partnership returns:

For partnership returns for tax years beginning in 2008 that are required to be filed after 2008, the late filing penalty is increased to $90 for each month or part of a month (up to 12 months) the return is late multiplied by the total number of persons who were partners in the partnership during any part of the partnership’s tax year.

About Peter Pappas

Peter is a tax attorney and certified public acccountant with over 20 years experience helping taxpayers resolve their IRS and state tax problems.

He has represented thousands of taxpayers who have been experiencing difficulty dealing with the Internal Revenue Service or State tax officials.

He is a member of the American Association of Attorney-Certified Public Accountants, the Florida Bar Association and The Florida Institute of Certified Public Accountants and is admitted to practice before the United States Tax Court, the United States Supreme Court, U.S. District Courts - Middle District of Florida

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Comments

  1. It is my understanding that failure to file penalties can be avoided under Rev. Proc. 94-35 for domestic partnerships with 10 or fewer partners as long as the partners pick up everything on their individual returns.

  2. I meant Rev. Proc. 84-35.

  3. Kevin,

    Thanks for visiting and thanks for the info.

  4. Catherine Evans says:

    Does the same rule for Late Filing, even if you owe no taxes, apply to C Corporations ?

  5. Catherine,

    Late filing penalties for late filed C Corporation returns are based on the net amount due. If there is no “net amount due,” there is no penalty.

  6. Catherine Evans says:

    Thanks for answer my question above. If I understand you correctly, then a C Corporation
    that is late filing their return but has no tax due
    would not have to pay the Late Filing Penalty that the S Corporation and Partnership has to pay?

  7. I have a LLC started in May 2007. My partner and i never did anything with the business. No business activity, no earned income of any kind, no expenses.

    I never filed a tax return for the LLC for 07, 08, and 09. I figured I didn’t have to. Is there a pentaly? Can I contact the IRS and advise my situation and plead ignorance.

  8. Chris,

    If the LLC was never active, you don’t have to file a tax return.

  9. What will the IRS consider to have the penalties for a late filing of the 1120S form???

  10. Bud Krater says:

    I am a practitioner fighting the new (since 2007) Code Sec 6699 late-filing penalties. Guess What!? If a Sub S has its 100 shareholders and doesn’t get around to filing (because they are losing $ {which is typical in first-year businesses} or because the manager/shareholder doesn’t have his act together {which is also typical in first-year businesses} they can be fined $234,000. That is not a math error. EVEN THOUGH THEY LOST MONEY, IRS CAN STILL FINE THEM!!! THIS LAW NEEDS TO BE THROWN OUT. IF YOU’VE NEVER THOUGHT ABOUT WRITING YOUR CONGRESSMAN, THINK AGAIN.

    Godspeed.

    Bud K

  11. I am a victim fighting the new (since 2008) Code Sec 6699 late-filing penalties. Guess What!? I am a Sub S have 3 shareholders and didn’t get around to filing (because we are losing $ 3 year old businesses} and because the manager/shareholder wears multiple hats {which is also typical in start-up businesses} we got fined $2,136.

    Meanwhile in the process and before we realized we had misplaced and not filed the paperwork we had filed to change status to LLC. Why because we were not making a consistent payroll on a routine basis- big no no for S Corp. Already granted LLC before we knew we were slammed with a Fed tax liability! Sucks to be us. We will be better off going bankrupt at this point. This law need to be amended.

  12. Hi, Peter,

    My case is very similar to Chris’.

    I have a partnership LLC started in Oct 2007. In 2007 and 2008, my partners and I paid a few hundred bucks to business entity fee ($250 each year, and some registration fee). No other business activity, no earned income of any kind, no other expenses.

    I never filed a tax return for the LLC for 07, 08, Is there a pentaly? If so, I must pay several thousand dollars for my mistake.

    Another question about the number of parterners, when we registered this LLC, we have 4 names in form REG-1, but only 3 people have share, so if there is a penalty ($89 each month, multiply the number of people), should it be 3 or 4 people?

    Thanks a lot.

    Young

  13. I have a new client that has lost money every year although small amounts and largely due to depreciation.
    He has not filed his S-Corp return since 2005

    If we file those years, will he get the late filing penalty for years before 2008 of the new law

  14. My husband & and I have a s-corporation. We have continued to file our taxes with $0.00 income, no business transactions, and no assets. The business has been closed since 2001. I went to close it and the official office where I went to close it suggested that we might want to keep it open in case we wanted to use again. We have not nor have plans to do so yet we kept it open at this idea.
    Now, the IRS is charging us approximately $1200.00 as the stockholders. It is not for income but filing 2009, late and the penalities. There are only two stockholders. My husband and myself.
    I disagree that we filed late for 2009, or any year unless we filed an extension and then we met the extension date. However, my mistake, not sending certified; therefore, my word against IRS.
    My question? Since the corporation has not made any income and has no assets since 2001, can the IRS attach any personal assets if we choose not pay?
    The corporation has nothing!
    Thanks!

  15. I have the same problem as Nancy. We were sent a notice for almost $5K in penalties, for a return they didn’t get in 2008. We have two shareholders. By their own math, the penalties should have been about $2100, but even if it were $500, the corp has zero assets, and only me and husband as shareholders.

    Can they go after us as shareholders if we don’t get an abatement?

    The whole thing is ludicrous! We have never owed any money or had any profit at all as a corp.

  16. I have an S Corporation but have not done in business – “no activity” and no income or taxes for 10 years. I want to start again, will I be penalized? It’s myself & wife business.

  17. Don,

    If the company was inactive and merely a shell corporation, you should be okay.

  18. My wife and I had an 1020S corp. It went out of business in 2009. I did not file a return on time in 2009 since it was out of business and had no income. In april I was told I had to file. I requested an extension which was denied. I then filed late, again owing nothing.. I have since formally notified the state and Feds that the business is out of business. Now the IRS is charging us a late filing fee of $890. I appealed and it was rejected. What alternatives do I still have. I am on SSI. Thanks, Jim

  19. I just paid $780 in late filing fee for my corporation that was closed in August 2010. Can I at least deduct the $780 on my personal tax return for 2011?

  20. Joanna,

    This was a late filing penalty, not a fee. Penalties are not deductible.

  21. Was the late filing penalty for S-Corporation effective for Tax Year 2008 or did it start for Tax Year 2009? I just paid almost $2000 for filing late for 2009, but they said they didn’t get our 2008 return, either. Just wondering if I would get another big penalty when I send it copies of our 2008 return.

  22. Tim Yeager, CPA says:

    I know this post is 2 years old but since today is 09/15/11 it would still apply. I have a client who never gets their stuff together and we always are pushing to file the S-Corp by 09/15. Same situation today. The information I have is not perfect, but, I guess we’ll just file and then file an amended return later. Seems kind of silly to have to do that since it is much more work for the IRS to receive the paper form 1120S Amendment later and have to process it. But, oh well.

  23. What is the penalty for late filing a Form 1041 with no tax due?

  24. i entered into an agreement with the irs to pay back tax from 1998 -2006. i paid all my $200.00 a month until i received a notice i had paid off the full amount.
    that was in 2004/now i received a notice of levy on my social security, for some the taxes i had paid in full thru my monthly installment plan. he told me that he did not see anything in my account showing such agreement and payments made. he was totally rude when i asked who i should talk too, he told me he was the only one assinged to my case. if i want to talk to someone else have to go to local office with all my proof. i do have proof. any advice ?

  25. Kim,

    Simple. Show them the “proof.” But make sure you keep the original.

    Do you have copies of cancelled checks showing that you made the monthly payments? Do you have a copy of the IRS letter saying that you paid your tax debt for 2004 in full? If so, you need to show them these things.

    Good luck.

  26. I have a single person LLC taxed as a Sub-S corp. It has been used for a couple different purposes, but never made a significant amount of money, and no taxes were ever due. My accountant took forever getting my returns done, and literally this past summer filed 2006, 2007 & 2008. The IRS has decided to charge me a penalty on the 2008 of $1,068, and fortunately has not levied a penalty on the other 2 as of yet. My question is, what are the ramifications for just dissolving this LLC, not paying the penalties for 2008, and 2007 and 2006 should they occur?

  27. Don,

    Does the LLC own any assets? If not, you will probably be okay with dissolving the corporations because the IRS penalty assessments are not assessed against the shareholders. You might also consider filing a penalty abatement request with the IRS explaining , if is true, that there was no tax due and that you gave the information to a qualified tax preparer who failed to do the work or return the records.

  28. Regarding an S Corporation late filing penalty: IRS Notice 746 (Rev. 10-2011), paragraph 32, line 28 states “*For returns required to be filed after December 31, 2008, the penalty is $89.” The IRS telephone person said that statement is not operative. It doesn’t say “per month”. Does anyone know what is going on? Are we still using standard English?

  29. My Accountant says he filed Extension Form 7004 for each of my two companies (both of which are subsequently closed), for tax year 2009, but IRS did not receive. I am now being charged penalties plus interest for the six months between March 15 and September 13 when my return was filed. Is it my responsibility to pay the penalties or is it my Accountant’s? Thank you in advance for your response.

  30. K Mills,

    If he said he filed them have him produce the certified return receipt or at least copies of the extensions with his signature and date on them. Also, have him prepare an Affidavit swearing that he prepared them and sent them in on time. Then send this info to the IRS requesting abatement of the penalties.

    If you were charged interest, that means you didn’t pay your taxes on time. There is no extension for the payment of taxes. You should have made a tax payment with your extension.

    If the companies are closed and there are no assets from which to pay the penalties and interest, you, personally, have nothing to worry about. Send a letter to the IRS telling them that the companies are dissolved.

  31. Is there a penalty on a failure to file a 1041 if no tax would result from it?

    For example, the resulting K-1 (with the unearned income from a brokerage account) will be issued to a dependent and will not exceed the filing requirement for said dependent.

  32. The LLC does not own any assets…it was originally used to run mortgage broker income through, and now used to run income through from a 501c3 I do work for. I’ve printed off IRS Form 843, (is that correct?) and will try an abatement first, unless you think that might hinder my just dissolving that LLC by putting it on their radar? In other words, if they deny it, will they now be more likely to want to collect, or does that matter, and dissolving it will just dissolve it and that’s that?

  33. Lory phillips says:

    the irs said it never recieved the w2 report for 2008 on my s corp. we resent the form after we were told they were not received. they again told us return was not received. there were no taxes owning on returns.. i was sent a letter this summer that the same returns are missing. my accountant resent them regestered mail. they now have the returns and are planning to levy the business $20,000.00 and penalty of $136. due by december 15th.

  34. Lory,

    What is the $20,000 assessment for? If it’s a penalty, you may be able to get it removed through the penalty abatement process. I need more information before I can advise you.

    In the future, send everything to the IRS certified mail, return receipt requested.

  35. I received an IRS ‘Notice of Intent to Levy’ based on a penalty-tax imposed for filing a late LLC return in 2005. No tax was due, no income or expenses, but indeed it was filed late by 1 month.
    The question is: Can IRS levy or lien PERSONAL property to collect on an LLC tax debt that IS NOT a Trust Account tax liabilty?

  36. GLORIA PASCUAL-WILLINGER says:

    LATE FILING PENALTIES WHEN NO TAX IS DUE IN THE CASE OF “C CORPORATION”

    I NEED TO KNOW IF THERE IS A “IRS RULING”

  37. Gloria,

    Say please . . . and stop YELLING!

  38. Hi,
    I’m trying to understand how to get a partnership late filing penalty abated.
    It is an LLC company.
    The only members are a husband and wife, so wouldn’t this be considered a single entity partnership or sole proprietorship ?

    I’ve read, in a quite a few places, that since I can answer “Yes”, to the below stated questions, my LLC was charged incorrectly and that I should have no problem getting the penalty abated with a letter explaining everything.
    I’m trying to make sure my understanding of everything is correct, because it seems as if everything I read, contradicts itself.

    1. Is the partnership a domestic partnership ? Yes.

    2. Does the partnership have 10 or fewer partners ? (husband and wife and
    their estate are treated as one partner) Yes.

    3. Are all partners natural persons (other than a nonresident alien) or an
    estate of a deceased partner ? Yes.

    4. Is each partner’s share of each partnership item the same as his share of
    every other item ? Yes.

    5. Have all the partners timely filed their income tax returns ? Yes.

    6. Have all the partners fully reported their share of the income, deductions, and
    credits of the partnership of their timely filed income tax returns ? Yes.

    What is your opinion on this matter and is my understanding of the information correct ?

    Thank you so much for any info you can give me.

  39. Samantha,

    My advice to you is don’t take the advice of bloggers, including me. Take the plunge and hire a CPA or tax attorney. If you hire the right one, he will save you money.

  40. Alright, thank you for your time.
    I guess I will start looking into CPA’s.

  41. Thank you for informative blog

  42. If my S corp earned no money and I have no basis to write off any losses this year, can I still file my 1040 now even though I have an extension on the S corp and won’t have the K-1 until September? The K-1 will not change my personal tax situation

  43. I filed for S Corp last fall. My business hasn’t opened, hasn’t made or spent a dime, do I need to file taxes or claim my shares of the company on my taxes? I am new to all of this and trying to figure it out. My company is set to open in a month or so and I will be filing everything then I know. I am just not sure how to handle the end of the year stuff for 2011. Thanks.

  44. Christina,

    If your company was not open for business in 2011, you don’t need to file a 2011 tax return. I assume you just set up the corporation in 2011 and never did anything with it, right?

  45. John,

    Sure you can. As long as the return is correct, the IRS doesn’t care. Just make sure you are right about the K-1 not changing your return.

  46. Peter,
    That’s right. I filed the paperwork and that is it. I have the stock shares, which are worthless since the company hasn’t done anything. Do I need to report those on my individual taxes, or do those sit dormant until the company is actually open?

  47. Christina,

    There is nothing to report. Your first tax return will be your 2012 return which will be filed in 2013. Good luck and keep good records. You’ll be fine.

  48. Has the late penalties gone up from $89. Plus how is it calculated from the due date of March 15 or from when you file an extinction which is September 15. I have a client who has been very Ill over the last few years with cancer I filled extinction and when he was well I filled taxes as soon as possible. Any help would be great.

  49. Very helpful string, Thanks.
    Can anyone provide me the citation or official reference for the imposition of the penalties discussed?
    I see them stated in the Instructions for IRS Form 1065, but am unable to locate the actual rule, regulation or statute that forms the basis for the statement.

  50. Hi there – I have a s-corp and I did not file a return in the 2009 fiscal year ’cause there has been zero business activity. I did file for an extension in march of 2010 however, but came september of 2010 and I did not do it. I filed the year of 2010 in september of last year. My question is: would I be assessed a penalty for not filing 2009 up until the filing I did for the year of 2010? or my penalty for 2009 will be accrued until I actually have 2009 filed? The corp is only myself as a shareholder. How much should the penalty be? I would greatly appreciate any input. Thanks!

  51. Hi,
    I am a manager (there are 3) of a now-defunct LLC.
    In 2010 we sold our assets, took our losses as shareholders, disbursed what was left to the shareholders, and called it quits.
    Someone told us that because we forgot to officially close the bank account in 2010, but did it in 2011, we are required to file for 2011. Apparently, in the 2010 return, there was a spot to mark “is this the final return’ or something like that,. and it was not marked.
    I am now at a loss, the LLC license is not active with the state, and was not renewed for 2011 or 2012, By now the name is back in the public domain.
    I do not know what action to take. I am in utah.
    any input? thank you,
    Clay

  52. Peter,
    You have mentioned in a couple of blogs ( 27 and 30) that the partner is not liable for the failure to pay penalties. Where can I find this cited.

    Thanks,

    Gene

  53. I started a single-person LLC in Kentucky in 2005. A business never developed and no income was ever made. Kentucky has $175 minimum tax for LLCs, which I paid in 2006 and 2007. I thought I dissolved the LLC in 2009, but apparently it wasn’t official. I did not file the LLC return in 2008, 09,10. I received a notice from the Kentucky Dept. of Revenue that returns must be filed and completed, including penalties and interest.

    Since no business ever developed and no money was ever made (in six years), am I still liable for the $175 minimum tax per year since no income from business ever developed? Do I have any recourse?

  54. Jill Lee says:

    I moved to Canada in 2007. I did not know I need to file corporate tax returns when there is no business activity. What should I do?

  55. I just found out that I didn’t file my return from 2007 for my S-Corp. No money was due. I just put them in the mail. What should I expect my fine to be? Is it $89 for up to 12 months or $89 per month for every month since 2007?

    Thanks

  56. I filed an extention on a 1120S tax return and now extention has passed and I was wondering if my 1120S return is filed by 10/15/2012 what is the penalty?

    Thanking you in advance,
    Della

  57. Hi,
    I opened an LLC in 2010 but did not do any business on it until 2011. Do I still need to file anything for 2010?
    Also is there a minimum the business needs to make in order to file?