How a Small Partnership Can Get The Failure to File Penalty Waived

Face it, no one likes to get letter from the Internal Revenue Service (“IRS”).

This is particularly true when you are being assessed a penalty.

The IRS has many different penalties.  One penalty they have is the failure to file penalty.

For partnerships or Limited Liability Companies (“LLC”s) that file a Form 1065 the penalty for failure to file is $195 per month times the number of partners. The good news is that the maximum number of months than can be assessed is 12 months. There is a process however for “small partnerships” to get this penalty waived.


Eligible Partnerships

To be eligible to get this penalty waived a partnership must meet the following:

* A Domestic Partnership

* Have 10 or fewer partners

* Each partner’s share of each partnership item is the same as their share of every other partnership item.

* All of the partners have fully reported their share of the income, deductions and credits of the partnership on their income tax return.


This process is formally documented under Revenue Procedure 84-35.


The Process

To respond to a penalty for failure to file a letter should be written to the IRS.  If the letter is coming from the CPA a Power of Attorney, Form 2848 should be enclosed. Additionally, enclose a copy of the letter from the IRS.  This makes it easier for the representative to address the issue faster by having all of the documents in front of them. The letter should detail the items above to document that the partnership is an eligible small partnership and the penalty should be waived. As with all communication with the IRS we recommend that it be sent certified mail, return receipt requested.

We have picked up new clients that were unaware of this process and paid the penalty.  Although it took longer than usual, we were able to get the penalty abated and refunded to our client. Generally the statute of limitations allows taxpayers to go back 3 years.


Have you had success getting a failure to file penalty waived?


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Tom Scanlon has over thirty years experience in public accounting with an extensive background in the areas of financial, tax, and estate planning. He prides himself on providing in-depth and customized solutions to privately held businesses and their owners. He is a Certified Public Accountant and Certified Financial Planner®. Tom is a frequent speaker for area organizations and has  recently been quoted on CNBC, Fox 61 News and AARP's blog. Tom also has been a guest columnist for numerous publications including The Wall Street Journal, Barron's, Money Magazine, The Hartford Courant, The Hartford Business Journal, and The New Haven Register. He is a member of the American Institute of Certified Public Accountants, the Connecticut Society of Certified Public Accountants, and the Financial Planning Association. Active in the community, Tom supports a variety of not-for-profit organizations.

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