CP162 Notice
The CP162 is an IRS penalty notice issued to partnerships, S-Corporations, and other pass-through entities for filing their tax return late. The penalty is assessed per partner or shareholder, per month, and can add up quickly.
Why Did You Receive This Notice?
You received a CP162 because the IRS did not receive a required partnership or S-Corporation tax return (Form 1065 or 1120-S) by the filing deadline, including any extension deadline. The IRS automatically assesses a late filing penalty for each month the return is late, multiplied by the number of partners or shareholders.
What Does this Mean for You?
The CP162 means the IRS has assessed a failure-to-file penalty on your entity's return. For partnerships and S-Corporations, this penalty is currently $245 per partner/shareholder per month the return is late, up to a maximum of 12 months. With multiple partners, this can reach tens of thousands of dollars quickly.
What Happens If You Ignore It?
Your Options
- Pay the penalty to resolve the balance.
- Request First-Time Penalty Abatement: If this is the first time your entity has been penalized for late filing, you may qualify for full abatement of the penalty.
- Request Reasonable Cause Abatement: If there was a legitimate reason the return was filed late, you can submit a written request explaining the circumstances.
- Confirm the return was filed: If you believe the return was filed on time, provide proof of filing.
Step-By-Step: What To Do Next
- Confirm whether the return was actually filed late, check your records for proof of timely filing or extension.
- Calculate the penalty to verify the IRS's assessment is correct based on number of partners and months late.
- Determine if you qualify for First-Time Penalty Abatement, this is available if you have a clean filing history.
- Draft and submit a penalty abatement request in writing if you qualify.
- If abatement is not available, pay the balance or set up a payment arrangement.
Can You Handle this Yourself?
First-Time Penalty Abatement is one of the most underused tools in tax resolution, and it requires no special expertise to request. Simply call the IRS or write a letter stating you are requesting FTA, confirm your entity has a clean compliance history, and ask for the penalty to be removed. Many CP162 penalties are removed entirely through this process.
Expert Insight From Rockwater Tax
At Rockwater Tax, we have an extremely high success rate getting CP162 penalties abated for first-time offenders. The IRS's First-Time Abatement program is designed exactly for this situation, an entity that has a clean history and made an isolated mistake. The key is knowing to ask for it and knowing how to frame the request. If FTA does not apply, reasonable cause arguments around COVID impacts, natural disasters, or other genuine disruptions have also been successful. Do not just pay this penalty without exploring abatement first.
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FAQ
Q: How is the CP162 penalty calculated?
A: The penalty is $245 per partner or shareholder per month the return is late, for up to 12 months.
Q: Can the CP162 penalty be waived?
A: Yes, First-Time Penalty Abatement is available for entities with a clean compliance history, and Reasonable Cause Abatement is available if there was a legitimate reason for the late filing.
Q: Does this penalty affect the individual partners' tax returns?
A: The penalty is assessed at the entity level, not on individual partners' personal returns.
Q: What if we filed an extension?
A: If a valid extension was filed and the return was filed by the extended deadline, no late-filing penalty should apply, contact the IRS with proof of extension.
