Avoiding Late Penalties on 1065 & 1120-S Amended Returns

For many tax professionals, the moment a return is filed, it’s easy to mentally file it away too – especially during the busy rush of tax season. But if a Form 1065 (Partnership) or Form 1120-S (S Corporation) return is rejected by the IRS and goes unnoticed, it can lead to costly consequences for your clients and potentially damage your firm’s credibility.

This article outlines how to help business clients avoid late filing penalties for Form 1065 or a 1120 late filing penalty, how these penalties are calculated, and how to use TaxSlayer Pro tools to monitor return acceptance and prevent missed filings.

What are Forms 1065 and 1120-S?

Both Form 1065 and 1120-S are used to complete Schedule K-1, which reports “pass-through” earnings to the IRS. Form 1065 applies to partnerships, while Form 1120-S is for S corporations. Although they’re filed by different types of entities both serve the same purpose: to report.t each partner’s or shareholder’s share of the business’s financial activity.

This includes profits and losses, or the net income or net loss the business generates during the tax year. Instead of the business paying income tax directly, these amounts are “passed through” to the individual owners. Each owner should receive a Schedule K-1 showing their portion of income, deductions, credits, and losses. The owner then reports this information on their personal income tax return, which can affect their overall tax liability.

When are Form 1065 and 1120-S due, and what are the penalties for filing late?

Schedule K-1s (Form 1065 or Form 1120-S) filing due date typically falls on the 15th day of the 3rd month after tax year-end. They must be filed with the IRS and sent to all partners or shareholders by this date. If needed, businesses can apply for up to a six-month extension using Form 7004. The individuals must then include the information from the Schedule K-1s in their Form 1040s and file by the tax deadline.

Currently, the late filing penalty for Form 1065 is $245 per month (or part of a month) up to a maximum of twelve months for each partner or shareholder on the return. Form 1120-S carries the same late penalty if no tax is due. However, if tax is due, the penalty is even greater.

For both Form 1065 (Partnerships) and Form 1120-S (S Corporations), the IRS assesses a penalty for each month until the return is late, up to 12 months. The monthly penalty is calculated by multiplying the base penalty rate by the number of partners or shareholders during the tax year.

For example, if a partnership has five partners and filed three months late the penalty would be:

$245 (base penalty rate) x 5 (number of partners) x 3 (months late)
= $3,675

In this example, the penalty is assessed at $3,675.

The base rate is adjusted annually for inflation. For returns due after December 31, 2024, the minimum penalty is $245 per person per month.

Additional penalties for S Corporations

In addition to the $245 per month per shareholder, the S-Corp will also be charged 5% of the unpaid tax for each month the form is late, up to a maximum of 25% of the unpaid tax. The minimum penalty for an 1120-S return that is more than 60 days late is the smaller of the tax due or $510.

Why are late filing penalties on 1065 and 1120-S returns so common? 

Unlike individual returns, where missing refunds or balances are quickly alerted to the taxpayer with a rejection, business entity returns can go unnoticed for months if something goes wrong.

Form 1065 (Partnerships) and 1120-S (S Corporations) rely on a multi-step process:

The entity files its return

Schedule K-1s are generated and distributed

Owners report that information on their individual returns

. If the original entity return is rejected, incomplete, or never accepted by the IRS, the issue often isn’t immediately obvious.

Why these issues go undetected

These IRS inquiries often occur months or even years later, and by that time, a late filing penalty is assessed against the entity. While it is ultimately the business’s responsibility to ensure its return is filed and accepted, it’s good customer service for preparers to help clients follow through the filing process and monitor IRS rejections.

Even if the entity return is not properly filed:

Partners/shareholders may still file their individual returns using draft or incorrect K-1 data

The IRS may not cross-check the missing or rejected entity return right away

IRS notices or inquiries can take months, or even years, to arrive

Can business request penalty relief for late 1065 or 1120-S filings?

Yes, businesses may be able to request IRS penalty relief for late-filed Forms 1065 and 1120-S. However, approval depends on specific eligibility criteria and supporting documentation.

First-time penalty abatement (FTA)

The IRS offers First-Time Abatement (FTA) for taxpayers with a strong compliance history. To qualify, the business must generally:

Have filed all required returns (or filed valid extensions)

Have no penalties (or only minimal penalties) in the past 3 years

Be current on tax filings and payments

FTA is often the easiest form of relief to request but is typically limited to one-time use.

Reasonable cause relief

If your client does not qualify for the FTA, they may still request relief based on reasonable cause. The IRS may grant relief if the business can show it exercised ordinary business care but was unable to file on time due to circumstances such as:

Serious illness, death, or unavoidable absence

Natural disasters or disruptions

Reliance on incorrect professional advice

Issues outside the business’s control

The key is demonstrating that the failure to file was not due to willful neglect. Penalty relief is typically requested after the IRS issues a notice assessing the penalty. The notice will include details on the penalty amount and reason. Businesses can request relief by:

Calling the IRS using the number on the notice

Submitting a written response explaining eligibility

Filing Form 843 (Claim for Refund and Request for Abatement) in some cases

Timely response to these notices is critical to avoid additional penalties or enforcement actions.

Documents required for penalty relief requests

To support a penalty relief request, businesses should be prepared to provide:

A clear written explanation of the circumstances

Relevant dates and timelines

Supporting documents (medical records, insurance or disaster reports, correspondence with tax professionals, proof of system or filing issues)

Well-documented requests are more likely to be approved.

How to check for unaccepted 1065 and 1120-S returns in TaxSlayer Pro 

For Partnership (Form 1065) and S Corporation (Form 1120-S) returns, you can run business reports in your TaxSlayer Pro software identify issues such as “Returns Not Accepted”, “State Returns Not Accepted”, or “Electronic Extensions Not Accepted”.

Transmitting a return does not mean the IRS has accepted it. A return is only considered successfully filed once it has been accepted by the IRS (or state). If a return is rejected, it is treated as unfiled until the issue is corrected and the return is successfully resubmitted and accepted.

Each of these reports can identify any returns or extensions of which you have not yet processed an acceptance acknowledgment from the IRS (or state). In essence, they alert you to the need to file an extension for a business entity or correct a return that the IRS has rejected.

Running this report allows you to quickly see whether the IRS has processed and accepted the Schedule K-1s of your business clients, giving you time to correct any oversights before the filing deadline.

For more on Schedule K-1 from TaxSlayer Pro, see our detailed support pages: