Under last year’s Mortgage Relief Act, penalty provisions for late filed S corporations and partnerships have changed.
S Corporations
A new penalty for failure to file an S corporation return may be charged to an S corporation if it files after the due date of the return (including extensions). The penalty is effective for S corporation returns required to be filed after December 20, 2007.
The penalty is imposed for each month (or part of a month) during which the failure continues, for up to 12 months. The penalty is calculated using the following formula:
$85 × number of months late × number of shareholders at any time during the year
An S corporation is subject to this penalty if it is required to file a tax return and fails to do so timely, or if it files a return, but fails to show information that is required to be shown, unless reasonable cause is shown for each failure. The penalty may be assessed even if no tax is due.
If tax is due, an additional penalty amount may be charged. The additional penalty amount is 5% of the unpaid tax for each month or part of a month the return is late, up to a maximum of 25% of the tax. If the return is more than 60 days late, a minimum penalty may be charged (a minimum of $100 or the balance of the tax due on the return, whichever is smaller).
Example 1: XYZ is an S corporation. Shareholder O owned 51% of XYZ shares all year. Shareholder M owned 49% of XYZ shares part of the tax year, but sold all of his shares to Shareholder N, who held the shares the rest of the tax year. XZY filed its return 1½ months late. No tax was due. XYZ’s penalty is $510, calculated as follows: $85 × 2 months × 3 shareholders.
Partnerships
Similarly, for partnership returns required to be filed after December 20, 2007, the maximum amount of months for which the failure to file penalty may be assessed is increased to 12 months. In addition, the penalty amount per partner per month (or part of a month) is increased to $85. The penalty is calculated using the following formula:
$85 × number of months late × number of partners at any time during the year
For partnership returns required to be filed on or before December 20, 2007, the maximum amount of months for which the penalty may be assessed is five months, and the penalty amount per partner per month (or part of a month) is $50.
Note: For partnership tax years beginning in 2008 only, the penalty is increased to $86/month. |