Which notice is which
Until 2022 one notice, the CP162, covered every partnership and S corporation filing penalty. IRM 3.14.2.6.10 records the change: “After December 31, 2021, the CP 162 was revised and will inform Partnerships with more than 100 partners that they are being assessed a penalty for failure to file electronically.” The late filing and incomplete return penalties moved to new notices:
| Notice | Penalty | Authority | IRM penalty reference |
|---|---|---|---|
| CP162 | Failure to file electronically when required (partnerships) | IRC 6721(a)(2)(A); Treas. Reg. 301.6011-3 | PRN 688 |
| CP162A | Late filing of Form 1065, 1066 or 1120-S | IRC 6698(a)(1), 6699(a)(1) | PRN 722 |
| CP162B | Missing or incomplete information on Form 1065 or 1120-S | IRC 6698(a)(2), 6699(a)(2) | PRN 723 |
| CP162C / CP162E | Adjustment of a previously assessed penalty (balance due, small credit or even balance) |
In the IRM's words, “In January 2022, CP 162A was created to inform a partnership, Real Estate Mortgage Investment Conduit or S corporation that a penalty has been assessed for failure to timely file Form 1065, 1066 or 1120-S,” and “CP 162B was created to inform a partnership or S corporation that a penalty is being assessed for missing or incomplete information in relation to Form 1065 or 1120-S.” Clients often call every one of these a CP162; read the notice number in the corner before choosing a response.
Why the entity got it
- Late return. Form 1065 or 1120-S filed after the due date including extensions. The penalty is assessed systemically when the return is processed.
- Incomplete return. Required schedules or information missing. IRC 6031 and 6037 require all information the forms and regulations prescribe. In exams, IRM 4.31.5 lists missing Schedules K-1 and “Missing TINs on Schedule K-1 (five or more)” among the signs of an incomplete return.
- Paper return when e-filing was required. For partnership returns due after 2023, IRM 3.14.2.6.10.1 says e-filing is required if the partnership must file 10 or more returns in the calendar year or had more than 100 partners. The penalty is charged per partner over 100.
The IRM instructs: “If a partnership return is both late and incomplete, do not assess two penalties.” The incomplete return penalty takes precedence unless the return is 12 or more months late.
How the penalty is computed
The late filing and incomplete return penalties are a flat amount per owner per month (or part of a month), for up to 12 months. IRC 6698(b) multiplies the monthly amount by “the number of persons who were partners in the partnership during any part of the taxable year”; IRC 6699(b) uses shareholders. The base amount is indexed:
| Return due | Per owner per month | Source |
|---|---|---|
| In 2025 | $245 | IRM 20.1.2.4.2 |
| In 2026 | $255 | Rev. Proc. 2024-40, sec. 3.56 and 3.57; IRM 20.1.2.4.2 |
| In 2027 | $260 | Rev. Proc. 2025-32, sec. 3.55 and 3.56 |
Example using the 2026 figure: a 1065 for a partnership with 6 partners, due in 2026 and filed 4 months and 3 days late, is late for 5 months (a partial month counts), so the penalty is $255 × 6 × 5 = $7,650. The late partnership and S corporation penalty calculator runs the arithmetic. If the IRS used the wrong number of owners, the IRM directs employees to verify and adjust the count.
The e-file penalty on the CP162 is computed differently: a per-partner amount for each partner over 100, with annual caps. IRM 3.14.2.6.10.1 lists $340 per partner over 100 for returns due in 2026.
Deadlines
These penalties are assessed without a pre-assessment notice. IRC 6698(d) and 6699(d) say deficiency procedures do not apply, and IRM 4.31.5 confirms: “The penalties are not subject to deficiency procedures, IRC 6698(d) and IRC 6699(d).” There is no 30-day letter and no 90-day letter. The practical clocks are the payment date on the notice (interest runs on the unpaid penalty after it) and, if the entity pays first, the refund claim period for a paid penalty.
The IRM adds that although the penalty is assessed against the entity, “for the purpose of enforced collection action the partners or investors are held individually liable for the penalty to the extent of their liability for debts of the partnership or REMIC.”
How to respond
- Confirm who can speak for the entity. The IRS page says that for a corporation, an officer authorized to bind it, or a person the chief officer authorizes on Form 2848, may call. Get a 2848 for the 1065 or 1120-S and the year.
- Check the facts behind the penalty. Due date and extension (was a Form 7004 filed and processed?), the received date, the owner count used, and for a CP162B, which schedule the IRS thinks was missing. If a schedule was not required, the IRM says to abate “with PRC 045, IRS error.”
- For a CP162A, test First Time Abate first. FTA covers failure to file under “IRC 6698(a)(1), or IRC 6699(a)(1).” It does not cover the incomplete return penalty: the IRM says “First Time Abate does not apply to IRC 6698(a)(2)” and the same for 6699(a)(2). See First Time Abate.
- For a small partnership, consider Rev. Proc. 84-35. Reasonable cause is presumed if the partnership had 10 or fewer partners (a married couple filing jointly counts as one), each an individual other than a nonresident alien or a decedent's estate, allocations were proportionate, and every partner reported its share on a timely filed return. The IRS CP162A page says the entity “may return this notice with your statement, signed under penalty of perjury,” that it qualifies. The IRM is explicit that “Penalty relief under Rev. Proc. 84-35 does NOT apply to S corporations.” See Rev. Proc. 84-35.
- Otherwise, reasonable cause. Explain the facts that prevented timely, complete filing. The IRM cautions: “Reasonable cause is not demonstrated, and cannot be presumed, as long as the failure continues for which the partnership is being penalized.” File the return or missing schedule first. See reasonable cause and the reasonable cause letter template.
- For the CP162 e-file penalty, the IRS page lists two grounds to call: fewer than 101 partners, or a waiver of the e-file requirement. Have the waiver or partner count evidence ready.
Requests can be made by phone, in writing to the notice address, or on Form 843. See phone, letter or Form 843 for the trade-offs.
What the IRS does next
If relief is granted, the IRS abates with a transaction code 241 for the penalty reference number. Where Rev. Proc. 84-35 relief is granted, the IRM tells employees to advise that the penalty will be reassessed if any partner was not qualifying, filed late, or did not report its share. If the incomplete return penalty is abated on a return that was also late, the IRM directs employees to assess the late filing penalty instead, unless reasonable cause or FTA covers that too. Unpaid penalties follow the normal balance due path described on the CP161 page. A denial can be appealed; see appealing a penalty abatement denial.
Related notices
The underlying rules are covered in more depth on the IRC 6698 and IRC 6699 pages. Information return penalties for Schedules K-1 not furnished to partners are a separate penalty (IRC 6722) with their own notices.
Transition to Automatic Exemption from Penalty. The IRS First Time Abate page (reviewed October 2026) says FTA “is transitioning to a new relief called Automatic Exemption from Penalty (AEP), starting Summer 2026”. For Forms 1040, 1065 and 1120, Forms 940 through 945 and Form CT-1, beginning with 2025 tax year returns and 2026 quarterly returns, AEP is applied when the original return completes processing: with three prior years (or 12 consecutive quarters) of timely filing and payment, “The IRS won’t assess penalties for failure to file, failure to pay, or failure to make a deposit” and sends a letter saying the relief was applied; “You don’t need to contact the IRS or respond to the notice.” FTA continues to apply to earlier periods and to returns AEP does not cover, and the page says to contact the IRS if a penalty was assessed that should have qualified. See First Time Abate.
Questions practitioners ask
Can the IRS charge both the late filing and the incomplete return penalty?
Not on the same return. IRM 20.1.2.4.1 says not to assess two penalties; the incomplete return penalty takes precedence unless the return is 12 months or more late.
Does First Time Abate work for a CP162B?
No. FTA applies to the failure to file penalty under IRC 6698(a)(1) and 6699(a)(1), not to the incomplete return penalty under (a)(2). Reasonable cause or a showing that the schedule was not required are the routes.
Can an S corporation use Rev. Proc. 84-35?
No. The IRM says it does not apply to S corporations. S corporations rely on FTA (for late filing) or reasonable cause.
Can the entity go to Tax Court before paying?
No. Deficiency procedures do not apply to these penalties. The routes are abatement, Appeals after a denial, or paying and filing a refund claim.
Who counts as a partner for the computation?
Anyone who was a partner at any time during the taxable year, per IRC 6698(b). If the return reported the wrong count, ask the IRS to correct it.