IRS Penalty for Late Filing of Form 1065: 2026 Partnership Costs & Relief

IRS Penalty for Late Filing of Form 1065: 2026 Partnership Costs & Relief

The irs penalty for late filing of form 1065 is a monthly charge assessed against partnerships that miss their federal tax return deadline. For the 2026 tax season (covering the 2025 tax year), this penalty has increased to $255 per partner, per month (or part of a month) the return is late. Because this penalty is multiplied by the number of partners, even a small business with just a few owners can face thousands of dollars in fines for being only a few months late.

In this guide, we will break down the 2026 penalty rates, explain the “Small Partnership” exception that can save you from these costs, and show you how to request a waiver. Understanding the irs penalty for late filing of form 1065 is essential because, unlike individual taxes, these fines are not based on how much tax you owe, but simply on the fact that the paperwork was late.

How the 1065 Late Filing Penalty is Calculated in 2026

Partnerships are “pass-through” entities, meaning they generally do not pay income tax themselves. Instead, they file Form 1065 to report income to the IRS and issue Schedule K-1s to their partners. Because the IRS relies on this information to track the partners’ individual taxes, the irs penalty for late filing of form 1065 is designed to be very strict.

For returns due after December 31, 2025, the calculation is as follows:

  • Base Rate: $255 per partner.
  • Duration: Charged for each month or partial month the return is late, for up to 12 months.
  • Total Formula: ($255) x (Number of Partners) x (Number of Months Late).

Example: A partnership with 4 partners files its return 3 months late. The irs penalty for late filing of form 1065 would be $3,060 ($255 x 4 partners x 3 months).

Takeaway: The “per partner” math means that larger partnerships can reach a maximum penalty of tens of thousands of dollars very quickly.

2026 Deadlines and Extension Rules

To avoid the irs penalty for late filing of form 1065, you must know your deadline. For calendar-year partnerships, the due date is the 15th day of the third month after the year ends.

  • 2026 Deadline: March 16, 2026 (since March 15 falls on a Sunday).
  • Automatic Extension: By filing Form 7004 by March 16, you get a 6-month extension to September 15, 2026.
  • Electronic Filing: Partnerships with more than 10 partners are generally required to e-file. Failing to e-file when required can trigger additional penalties of $255 per Schedule K-1.

Quick Tip: An extension only gives the partnership more time to file Form 1065. It does not give the individual partners more time to pay their personal taxes.

Takeaway: Filing a simple one-page extension form (7004) by mid-March is the most effective way to eliminate the risk of this penalty.

The Small Partnership Exception (Rev. Proc. 84-35)

There is a special rule that can completely remove the irs penalty for late filing of form 1065 for certain small businesses. Under Revenue Procedure 84-35, the IRS may waive the penalty if the partnership meets all of these criteria:

  1. 10 or Fewer Partners: The partnership must have 10 or fewer partners (a husband and wife count as one).
  2. Individual Partners: All partners must be natural persons (U.S. citizens or residents) or estates of deceased partners.
  3. Full Reporting: Every partner must have filed their own individual tax return on time and reported their full share of partnership income.
  4. Proportionate Sharing: All income and losses must be shared in the same proportion among partners.

If you meet these rules, you can respond to an IRS penalty notice by citing “Revenue Procedure 84-35”. You can learn more about how we help small businesses with these requests on our About Us page or use our Contact form.

Takeaway: Many small partnerships pay this penalty unnecessarily when they could have it waived under the 84-35 exception.

First-Time Abatement and Other Relief

If you don’t qualify for the Small Partnership exception, you may still get the irs penalty for late filing of form 1065 removed through other programs.

  • Automatic First-Time Abate (FTA) in 2026: Starting in 2026, the IRS is implementing a system to automatically apply First-Time Abatement for partnerships that have a clean 3-year filing history.
  • Reasonable Cause: If the partnership missed the deadline due to a fire, natural disaster, or a death in the family of the person responsible for filing, you can request a waiver.

For more information on general filing rules, see our IRS late filing penalty guide or the Penalty for not filing taxes. If you are worried about interest on these fines, visit our page on IRS Interest on Late Taxes.

Takeaway: 2026 is a great year for relief, as many “first-time” mistakes will now be forgiven automatically by the IRS computer system.

Frequently Asked Questions

Is there a penalty if the partnership had no income?

Yes. The irs penalty for late filing of form 1065 applies even if the partnership had $0 in income or a net loss. The penalty is for the failure to provide the information required by the IRS.

What is the penalty for failing to provide K-1s to partners?

This is a separate fine. For 2026, the penalty for failing to furnish a Schedule K-1 to a partner on time is $330 per K-1. This can be added on top of the late filing penalty for Form 1065.

Can a partner request the waiver if the “Tax Matters Partner” is unavailable?

In a small partnership that has not designated a specific Tax Matters Partner (TMP), any partner can generally call the IRS to discuss a penalty notice or request abatement.

Does the IRS charge interest on partnership penalties?

Yes. If the irs penalty for late filing of form 1065 is not paid within 21 days of the notice date (or 10 days if the amount is over $100,000), the IRS will begin charging interest on the penalty amount.

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