I have a partnership return (5 partners) and it was filed late.

As a result, the IRS charged a $90 per person penalty.

What kind of reason I can use when I reply to the IRS notice in hopes of getting rid of the penalty?

asked 16 Nov '09, 05:20

TaxQueries's gravatar image

TaxQueries ♦♦
accept rate: 2%

edited 16 Nov '09, 07:03

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Brent Berkman

The late filing penalty can be "removed" for "reasonable cause", however, the Internal Revenue Code, Treasury Regulations, and other related "guidance" does not indicate, or define, "reasonable cause".

Revenue Procedure 84-35 provides for abatement of the penalty for partnerships having ten or fewer partners if the conditions in Section 3 are met, as follows:

".01 A domestic partnership com­posed of 10 or fewer partners and coming within the exceptions outlined in section 6231(a)(1)(B) of the Code will be considered to have met the reasonable cause test and will not be subject to the penalty imposed by sec­tion 6698 for the failure to file a com­plete or timely partnership return, provided that the partnership, or any of the partners, establishes, if so re­quested by the Internal Revenue Serv­ice, that all partners have fully re­ported their shares of the income, de­ductions, and credits of the partner­ship on their timely filed income tax returns.

.02 Partnerships having a trust or corporation as a partner, tier partner­ships, and partnerships where each partner's interest in the capital and profits are not owned in the same proportion, or where all items of in­come, deductions, and credits are not allocated in proportion to the pro­rata interests, do not come within the exception provisions of section 6231(a)(1)(B) of the Code and, are subject to the penalty imposed by sec­tion 6698.

.03 Although a partnership of 10 or fewer partners may not be auto­matically excepted from the penalty imposed by section 6698 of the Code under section 3.01, the partnership may show other reasonable cause for failure to file a complete or timely partnership return.

.04 In determining whether a part­ner has fully reported the partner's share of the income, deductions, and credits of the partnership, for pur­poses of section 3.01, all the relevant facts and circumstances will be taken into account. In making this deter­mination, the nature and materiality of any error or omission will be con­sidered. For example, although an isolated clerical error normally re­flects no more than mere inadver­tence, such an error may be of such magnitude that the partner will not be considered to have fully reported. If the error or omission results in a de minimis understatement of the net amount payable with respect to any income tax, the penalty will not be as­serted. However, if the error or omis­sion results in a material understate­ment of the net amount payable with respect to any income tax, the partner generally will not be considered to have fully reported and the penalty will be applied."


answered 16 Nov '09, 07:09

Brent%20Berkman's gravatar image

Brent Berkman
accept rate: 13%

I have always been successful at abating penalties IF the individual partner's returns were timely filed and paid. Cheryl Noland EA


answered 18 Nov '09, 13:31

Cheryl%20Noland%20EA's gravatar image

Cheryl Nolan...
accept rate: 0%

Yes, that is exactly correct!

(18 Nov '09, 18:55) Brent Berkman

Wow Brent,

You've got the law nailed! And this will help anyone who has to fight to get the penalties removed.

For the simple answer?

Just write IRS a letter explaining why the returns were filed late. Generally, unless you are flip, frivolous or rude, IRS will waive late filing penalties the first time they happen.

I've never seen it fail.

Best wishes

Eva Rosenberg, EA Your TaxMama®


answered 16 Nov '09, 14:23

TaxMama's gravatar image

accept rate: 11%

Yes, you are correct and that is what I first meant by "reasonable cause", but sometimes all that happened is the "taxpayer simply made a mistake and messed-up" and that's where the Revenue Procedure could be of assistance! In fact, the revenue procedure does not apply to a partnership with a corporate or flow-through entity partner, but I have utilzed the fact that K-1s were all furnished timely and all direct and indirect partners reported their share of tax attributes on timely filed returns resulting in favorable abatement results!

(16 Nov '09, 15:25) Brent Berkman
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Asked: 16 Nov '09, 05:20

Seen: 25,943 times

Last updated: 18 Nov '09, 13:31