To help ensure that returns are filed correctly and on time, the
law provides penalties for failure to do so.
Failure to file.
A penalty is assessed against any partnership that must file a
partnership return and fails to file on time, including extensions, or
fails to file a return with all the information required. The penalty
is $50 times the total number of partners in the partnership during
any part of the tax year for each month (or part of a month) the
return is late or incomplete, up to 5 months.
The penalty will not be imposed if the partnership can show
reasonable cause for its failure to file a complete or timely return.
Certain small partnerships (with 10 or fewer partners) meet this
reasonable cause test if:
- All partners are individuals (other than nonresident
aliens), estates, or C corporations,
- All partners have timely filed income tax returns fully
reporting their shares of the partnership's income, deductions, and
credits, and
- The partnership has not elected to be subject to the rules
for consolidated audit proceedings (explained later under
Partner's Income or Loss, in the discussion under
Reporting Distributive Share).
The failure to file penalty is assessed against the partnership.
However, each partner is individually liable for the penalty to the
extent the partner is liable for partnership debts in general.
If the partnership wants to contest the penalty, it must pay the
penalty and sue for refund in a U.S. District Court or the U.S. Court
of Federal Claims.
Failure to furnish copies to the partners.
The partnership must furnish copies of Schedule K-1 (Form
1065) to the partners. A penalty for each statement not furnished will
be assessed against the partnership unless the failure to do so is due
to reasonable cause and not willful neglect.
Trust fund recovery penalty.
A person responsible for withholding, accounting for, or depositing
or paying withholding taxes who willfully fails to do so can be held
liable for a penalty equal to the tax not paid.
"Willfully" in this case means voluntarily, consciously, and
intentionally. Paying other expenses of the business instead of the
taxes due is considered willful behavior.
A responsible person can be a partner, an employee of the
partnership, or an accountant. This may also include someone who signs
checks for the partnership or otherwise has authority to cause the
spending of partnership funds.
Other penalties.
Criminal penalties can be imposed for willful failure to file, tax
evasion, or making a false statement.
Other penalties can be imposed for the following actions.
- Not supplying a taxpayer identification number.
- Not furnishing information returns.
- Overstating tax deposit claims.
- Underpaying tax due to a valuation misstatement.
- Not furnishing information on tax shelters.
- Promoting abusive tax shelters.
However, certain penalties may not be imposed if there is
reasonable cause for noncompliance.
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