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Failure-to-File Penalties for S Corps and Partnerships Are Costly

Generally, tax penalties are assessed based on the amount of tax owed. However, S corporations and partnerships can be assessed “failure-to-file” penalties even if the entity has no taxable income.

A penalty for failure to file a federal S corporation or partnership tax return is $195 monthly per shareholder for 12 months.

For instance, the monthly penalty for failing to file a return for an S corporation with four shareholders is $780 ($195 x 4 shareholders). If the return remains unfiled for 12 months or more, the maximum penalty equals the monthly penalty multiplied by 12. So the maximum failure-to-file penalty for a four-owner S corporation would be $9,360 ($780 x 12), even if the entity shows no taxable income.

The Same Thing Can Happen with Late-Filed Partnership Returns.

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