Overview

S‑corporations file Form 1120S and partnerships file Form 1065. Both returns are generally due by March 15 (the 15th day of the third month after the end of the entity’s tax year) unless a timely extension is filed. The IRS imposes failure‑to‑file penalties when those returns arrive late; these penalties are charged at a per‑month, per‑partner or per‑shareholder rate and can add up quickly (IRS: Form 1120S overview, https://www.irs.gov/businesses/small-businesses-self-employed/s-corporations; IRS: Form 1065, https://www.irs.gov/businesses/partnerships).

How penalties are calculated

  • Basis of calculation: For partnerships and S‑corps the IRS sets a dollar amount charged for each month (or fraction of a month) the return is late, multiplied by the number of partners or S‑corp shareholders. The IRS updates this dollar amount periodically; confirm the current rate in the Form 1065 or 1120S instructions before calculating your exposure (see IRS Form 1065 Instructions, https://www.irs.gov/forms-pubs/about-form-1065).

  • Typical structure: penalty = (monthly penalty amount) × (months late, capped at 12 months in many cases) × (number of partners/shareholders).

  • Example (illustrative): If the IRS monthly rate is $210 and a partnership with three partners files three months late, the penalty would be 210 × 3 × 3 = $1,890. This example is for illustration only — confirm the IRS’s current per‑month rate before using exact numbers.

Owner responsibility and who ultimately pays

  • The entity is the party assessed the failure‑to‑file penalty, but in practice the partners or shareholders bear the economic burden. For partnerships, the penalty amount is generally computed using the number of partners and billed to the partnership. For S‑corporations the same per‑shareholder structure applies.

  • Indirect owner exposure: Late informational returns (K‑1s) delay partners/shareholders from filing their personal returns correctly. Under the centralized partnership audit regime (and other audit rules), adjustments and interest can ultimately affect owners — so timely filing protects both the entity and the owners’ personal tax positions (FinHelp: Centralized Partnership Audit Regime, https://finhelp.io/glossary/centralized-partnership-audit-regime/).

Extensions and payments

  • A timely extension (Form 7004) extends only the time to file, not the time to pay. If the entity owes tax (e.g., certain built‑in gains or tax liabilities), interest and late‑payment penalties can still apply on unpaid balances. Always estimate tax due and pay by the original return due date to avoid additional charges (IRS: Form 7004 instructions).

Reasonable cause and penalty relief

  • Reasonable cause: The IRS may abate (remove) penalties if the entity can show reasonable cause for the late filing — for example, serious illness, natural disaster, or other circumstances beyond the taxpayer’s control. Documentation is critical.

  • How to request relief: You can request penalty abatement by submitting a written statement explaining the reasonable cause and providing supporting evidence, or by following the IRS’s penalty relief procedures. See FinHelp’s guide to Penalty Abatement: How to Request Relief from IRS Penalties and IRS guidance on penalty relief.

Practical steps I use in practice

  • Build deadlines into your accounting calendar and assign owners a single point of contact for tax filings.
  • Use tax software that issues reminders and tracks Form 7004 extension filings.
  • File as soon as possible — penalties typically stop accruing once the return is filed.
  • If you miss a deadline, collect documentation (emails, medical records, disaster declarations) to support a reasonable‑cause claim and engage a CPA early to prepare the abatement request.

Common mistakes to avoid

  • Treating an extension as extra time to pay. Extensions do not remove payment obligations.
  • Forgetting to count all owners when estimating potential penalties for partnerships with many partners (the multiplier effect can turn small oversights into large bills).
  • Missing state filing rules — many states have separate penalties and deadlines.

Resources and internal reading

Author’s note and disclaimer

In my practice working with small pass‑through entities, the most effective prevention is process — recurring reminders, early engagement with a CPA, and timely K‑1 delivery to owners. This article is educational and not a substitute for personalized tax advice. For specific situations, consult a qualified CPA or tax attorney and review the IRS instructions linked above.