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CP162A Notice: Late 1065 and 1120-S Penalties

November 14, 2026

A CP162A assesses a late Form 1065 or 1120-S penalty of $255 per owner per month for returns due in 2026. See IRS rates and First Time Abate.

In brief

A CP162A notice tells a partnership or S corporation that the IRS charged a penalty because the return was late, or because a required electronic filing was missed. For returns due after December 31, 2025, the late-filing penalty is $255 per partner or shareholder for each month or part of a month, for up to 12 months. For returns due in calendar year 2025, the rate is $245. First Time Abate may apply to a late-filing penalty if the entity has a timely three-year filing history. Relief is not automatic for every notice. No outcome is guaranteed.

This article is general information, not tax advice. Review your notice with a qualified tax professional.

What a CP162A is

The IRS page Understanding Your CP162A Notice states the charge is for one of two reasons:

The partnership or S corporation return was late, or
The return was not filed electronically, as required.

Read the notice number in the corner. Related notices are different. A CP162B is about missing or incomplete information on the return. A CP162C adjusts a penalty already assessed.

Partnership late-filing penalties are assessed under Internal Revenue Code section 6698. S corporation late-filing penalties are assessed under section 6699. The IRS explains both on its failure to file penalty page.

The per-owner monthly rates

The IRS publishes base rates by the return's due date, not counting extensions. The same table applies to Form 1065 and Form 1120-S.

Return due date (without extension)	Base penalty rate per owner, per month
After December 31, 2025	$255
January 1, 2025 through December 31, 2025	$245
January 1, 2024 through December 31, 2024	$235

The full history of older rates is on the IRS failure to file penalty page.

The formula is:

Base rate × number of partners or shareholders during any part of the tax year × number of months or partial months late, up to 12 months.

A partial month counts as a full month. The penalty can apply even when little or no tax is due. Form 1065 is an information return. See the Form 1065 instructions.

For S corporations, the Form 1120-S instructions use the same per-shareholder monthly amount when no tax is due. If tax is due, that amount is added to a 5% per month charge on the unpaid tax, up to 25%. For returns required to be filed in 2026 that are more than 60 days late, a minimum penalty may also apply: the smaller of the tax due or $525.

Worked examples

These examples use the IRS rates above. They assume the penalty applies in full and that no relief is granted.

A calendar-year partnership with two partners files its 2025 Form 1065 one month after the due date in 2026: $255 × 2 × 1 = $510.
The same partnership, six months late: $255 × 2 × 6 = $3,060.
An S corporation with five shareholders, 12 months late, return due in 2026, no tax due: $255 × 5 × 12 = $15,300.
A partnership with three partners, 12 months late, return due in 2025: $245 × 3 × 12 = $8,820.

Use the IRS penalty estimator (coming soon) to run the same arithmetic with your owner count and months late.

A separate penalty for late or incomplete K-1s

The Form 1065 instructions also describe a penalty for failure to furnish a complete and timely Schedule K-1 (and Schedule K-3, if required). For returns discussed in the 2025 instructions, that penalty may be $340 for each Schedule K-1 or K-3 with a failure. It is separate from the CP162A late-filing amount.

First Time Abate

First Time Abate (FTA) is administrative relief for taxpayers with a timely compliance history. The IRS lists failure to file a partnership return under section 6698(a)(1) and failure to file an S corporation return under section 6699(a)(1) as eligible penalties.

To qualify, the IRS requires a timely compliance history. In summary:

The same type of return was filed on time for the prior three years, and
No penalty was assessed for those years, other than an estimated-tax penalty, or a penalty was assessed and later removed for reasonable cause or IRS error, and
Any additional rules for business returns on the IRS page are met.

You must contact the IRS to request FTA. You can call the number on the notice, send a written statement, or file Form 843. You do not have to name FTA in the request. The IRS reviews the account and decides whether the history qualifies. No outcome is guaranteed.

The IRS describes FTA as applying to the late-filing penalties cited above. The administrative-relief page does not list the incomplete-return penalty under section 6698(a)(2) or 6699(a)(2), or the partnership electronic-filing penalty, as FTA-eligible items. Do not assume those charges will be removed under FTA.

Automatic Exemption from Penalty, starting in 2026

The IRS is replacing FTA with Automatic Exemption from Penalty (AEP) beginning in summer 2026. AEP covers 2025 tax year Forms 1065 and 1120-S and later, when IRS records show a timely three-year history. If AEP applies, the IRS does not assess the eligible penalty and sends a letter. If a penalty is still assessed and you think AEP should have applied, contact the IRS.

FTA remains available for earlier years and for 2025 returns not considered for AEP during the transition. The IRS states that FTA is no longer available for eligible returns with original due dates on or after January 1, 2027. Confirm the current rule on the IRS page.

Other relief paths

If FTA or AEP does not apply, two other paths may.

Reasonable cause. The IRS may remove or reduce some penalties if you can show reasonable cause and good faith. The CP162A page says you can mail a written explanation to the office where the return was filed. Interest is removed only to the extent the related penalty is removed. See penalty relief.

Rev. Proc. 84-35. For certain partnerships, the IRS presumes reasonable cause if every condition in Revenue Procedure 84-35 is met. Those include a cap of 10 partners (a married couple filing jointly counts as one), partners who are natural persons other than nonresident aliens, or estates, proportional allocations, and timely reporting by each partner on their own return. The procedure does not apply to S corporations or to every partnership.

Interest

The IRS charges interest on penalties. Interest continues until the balance is paid. For the calendar quarter beginning October 1, 2026, the underpayment rate is 7% per year, compounded daily, for taxpayers other than corporations, as announced in IR-2026-98. Corporate rates differ. Rates change quarterly.

What to do after you receive the notice

Read the notice number, the tax year, and the penalty type.
Confirm the return due date, any Form 7004 extension, the filing date, and the number of partners or shareholders. Errors in those facts can change the amount.
If the return still has not been filed, have it prepared and filed. The monthly penalty can continue for up to 12 months.
If the books are behind, close them first so the return can be prepared. See catch-up bookkeeping cost and the cleanup quote (coming soon).
If you agree with the penalty, the IRS asks you to pay by the date on the letter to limit further interest.
If you believe relief applies, call the number on the notice or write, as the IRS instructs. Alignment Capital's notice help is a paid service, $500 to $1,000, to organize records and coordinate with a tax professional. No outcome is guaranteed.

For ongoing books after the return is filed, see pricing or get started.

FAQ

What is a CP162A notice?

It is an IRS notice charging a partnership or S corporation a penalty because the return was late or, in some cases, because a required electronic filing was missed.

How much is the late Form 1065 or 1120-S penalty for returns due in 2026?

$255 per partner or shareholder per month or partial month, for up to 12 months, unless relief applies. The rate is $245 for returns due in 2025.

Does First Time Abate apply to a CP162A?

It may, for a late-filing penalty, if the entity meets the IRS three-year tests. It is not automatic under FTA. No outcome is guaranteed.

Can the penalty be assessed if the partnership had no tax due?

Yes. The per-owner monthly penalty is not based on tax due.

Does an extension prevent the penalty?

A timely Form 7004 extends the time to file. A return filed by the extended due date should not draw a late-filing penalty for missing the original date. An extension does not help if it was late, or if the return is still late after the extended date. See Form 1065 and 1120-S due dates.

Will Alignment Capital get the penalty removed?

No. Notice help covers records and coordination with a tax professional. No outcome is guaranteed.