Penalty for Late Filing of IRS Form 1120S

by Michael on Oct 8, 2013 · 4 comments

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Uh-oh. While sorting through some old paperwork, I just discovered a copy of an old IRS Form 1120S with a note on it saying that it needed to be mailed. But it wasn’t.

Or maybe it was… It’s always possible that I misplaced this one, got another copy from our tax attorney, and mailed it. I’m really not sure, so I’ve a called said tax attorney to help us sort this out.

For those that are unaware, Form 1120S is the tax return form for an S Corporation. And, while there was no tax due with this return, there’s a hefty penalty for late filing, along with additional penalties for late payment.

Penalty for late filing

Just how hefty? Well, according to IRS guidance:

A penalty may be charged if the return is filed after the due date (including extensions) or the return does not show all the information required, unless each failure is due to reasonable cause. […] For returns on which no tax is due, the penalty is $195 for each month or part of a month (up to 12 months) the return is late or does not include the required information, multiplied by the total number of persons who were shareholders in the corporation during any part of the corporation’s tax year for which the return is due.

If taxes were due along with the return, there’s an additional penalty of 5% of the taxes due for each month that the payment is late, up to 25% of the unpaid tax.

For returns that are at least 60 days late, the minimum penalty is the smaller of the full amount due or $135.

Note that if you file but pay late, the penalties may be lower. In that case, it’s calculated as 0.5% of the unpaid tax per month, up to 25% of the unpaid tax.

Avoiding the penalty?

Yikes. Thankfully, I was the sole shareholder. Even so, if I indeed failed to file, I could be on the hook for $2,340 in penalties. Good thing I didn’t also have taxes due, huh? As for the “reasonable cause” bit, the IRS says that:

If the corporation receives a notice about penalties after it files its return, send the IRS an explanation and we will determined if the corporation meets the reasonable-cause criteria. Do not attach an explanation when the corporation’s return is filed.

In other words, throw yourself at the mercy of the IRS and they’ll get back to you.

Hopefully, this will turn out to be much ado about nothing. But I have a sneaking suspicion that I did, in fact, drop the ball on this one. Oh well. Lesson learned.

1 Little House October 8, 2013 at 10:01 am

The IRS will usually work with you if you do owe a penalty or past due taxes. They aren’t as evil as people think. I made a huge boo-boo on our taxes a couple of years ago and ended up having to pay quite a hefty chunk. Thankfully, they let me set up a payment plan that worked for me.

2 Mr. Utopia @ Personal Finance Utopia October 8, 2013 at 11:11 am

I’ve never used a tax attorney – wouldn’t filing the return be among their services offered? It just seems silly for them to complete everything and then pass it off to you to file.

Anyway, that does seem like a hefty fine. It’s a bit of an overkill especially since there’s no tax due. I’m assuming your S-Corp is for your online venture(s)?

3 Michael October 8, 2013 at 12:45 pm

I had filed an extension and this was long enough ago that we weren’t e-filing (even though e-filing was prevalent at that time for individuals, for this sort of thing he recommended paper). Thus, he gave me a folder with explicit instructions. Unfortunately, it appears that I may have failed to follow those instructions…

Yes, for online stuff. Things were considerably more complicated for us on that front a few years ago.

4 thepotatohead October 14, 2013 at 4:16 pm

Not on nearly the same level as you, but I forgot one year to pay my $5 per capita tax for my county and it went into collections. I was getting letters and phone calls over $5 bucks which I forgot to send into the collector. Of all the crimes in this country….don’t mess with the tax man lol

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