1065 Late Filing Penalty and Your Options

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Short on Time? Here’s a quick summary of what’s ahead: 

There are many requirements when it comes to submitting information to the IRS, and if you neglect to do this properly, you face penalties. 

These penalties can get pretty steep pretty fast the longer the “issue” goes unresolved, so knowing what to watch out for and how to avoid IRS penalties is highly recommended.

One of the more common penalties is the 1065 late filing penalty. Form 1065 submission is only required from business partnerships. The reason it’s one of the more common penalties is because this form isn’t immediately linked to payments or refunds, so omissions often aren’t detected as quickly as they are when the movement of money is directly involved. 

However, the good news is there are penalty relief options if you’ve filed your 1065 late, particularly if it’s your first time missing the filing deadline or if you have a good and genuine reason.

Tax Relief Helpers are the experts in helping you understand your options when it comes to tax debts and penalties. If you’ve realized you’re late filing your 1065 or your partnership has a late filing penalty already, give us a call – our experts will walk you through all your options and help you resolve this with the IRS.

What is Form 1065?

Form 1065 is a return that must be submitted by businesses that are partnerships, i.e. businesses with two or more owners. 

Form 1065 is also known as a “Return of Partnership Income” or a “Partnership Tax Return”, and it involves reporting on the partnership’s income, gains, losses, deductions, credits, etc. 

However, the company or partnership itself doesn’t pay tax on its income; instead, it “passes through” its profits or losses to its partners. 

This means that, after filing the initial Form 1065, each individual partner must include their share of the partnership items from Form 1065 on their personal tax return. This is done using a Schedule K-1 Form

What’s the difference between Form 1065 vs 1120-S?

People are often confused as to the differences between Form 1065 vs 1120-S, or Form 1120-S vs 1120. Essentially, it simply boils down to your type of business. 

Different structures of businesses are required to file different tax returns:

If you are a partnership, you need to file Form 1065 (1065 PDF)

If you are an S-corporation, you need to file Form 1120-S (1120-S PDF)

If you are a C-corporation, you need to file Form 1120 (1120 PDF)

Both the 1065 and 1120-S are essentially different versions of the same form that “passes through” reports on earnings to the IRS. So in both these cases, the information from the 1065 of 1120-S needs to be included on each partner or shareholder’s individual tax return, after which the tax will be applied. 

C-corporations then use a third different form: Form 1120. This is similar in many ways to the 1120-S and 1065, but vastly different in that a C-corp pays taxes before distributing earnings, rather than passing them through to the individual shareholders as with S-corps or partnerships. 

When does Form 1065 need to be submitted?

Form 1065 for a domestic partnership needs to be filed by the 15th day of the 3rd month after the end of its tax year. 

As most partnerships use the calendar year, this means that in most cases the due date for filing Form 1065 is March 15. 

If you’re running out of time and want to avoid the penalty for filing Form 1065 late, you can file for an extension that will grant you an additional six months to file. This can be done using Form 7004 (which can be submitted electronically). The extension generally needs to be filed on or before the original filing deadline, i.e. on or before the 15th March if you use a calendar tax year.

 What is the penalty for filing Form 1065 late?

As of 2023, the 1065 late filing penalty is $235 for each month (or part of a month) that the failure continues (for a maximum of 12 months), multiplied by the number of partners in the company at any time during the taxable year. 

E.g., if you have a 10-member partnership, the fine would be $2,350 if your return is one month late, and $28,200 if it’s 12 months late. 

So as you can see, a partnership late filing penalty can get pretty steep, pretty fast!

It’s also important to note that each partner is held individually liable for the penalty, according to their level of liability within the company. For example, if one partner assumes 100% liability for the business debts, then that partner will be responsible for 100% of the total penalty cost. If all partners share equal liability, then each partner will be responsible for their share of the total penalty. 

Can you get penalty relief on a 1065 partnership late filing penalty?

Now for the good news: Yes, a 1065 late filing penalty may qualify for relief if you have a valid reason. 

There are three types of penalty relief you can apply for: 

  • First-Time Penalty Abatement and Administrative Waiver
  • Reasonable Cause
  • Statutory Exception

You can also apply for the penalty abatement at any time: 

  • Before you’ve even received the penalty if you know you filed late
  • When you’ve received the penalty, but before you’ve paid it
  • If you’ve already paid the penalty but think you may qualify for relief

While it’s possible to apply for penalty relief for your 1065 late filing penalty on your own, it’s highly recommended to enlist the services of an expert in tax penalty relief instead. We at Tax Relief Helpers know the exact situations in which the IRS is likely to approve a penalty abatement, what the IRS considers “reasonable cause”, when it makes sense to appeal rejections, and so on. With our help, you’re much more likely to be successful on your penalty abatement petition. 

Call us today or book a free consultation to find out more about how we can help you tackle your partnership’s late filing penalty or other tax debt and penalty concerns.