NEW - 2/2/14 – We have added a new updated blog post on this topic with downloadable sample letters.
If you have filed a partnership late in the last few years, chances are you received a penalty notice for late filing with a $50 “per partner, per month” late penalty. I hope none of you simply paid the notice without consulting your CPA or accountant as you may have paid the IRS a penalty that they would have automatically abated.
All you have to do is answer several easy questions:
1. Is the partnership a domestic partnership?
2. Does the partnership have 10 or fewer partners? (husband and wife and their estate are treated as one partner)
3. Are all partners natural persons (other than a nonresident alien) or an estate of a deceased partner?
4. Is each partner’s share of each partnership item the same as his share of every other item?
5. Have all the partners timely filed their income tax returns?
6. Have all the partners fully reported their share of the income, deductions, and credits of the partnership of their timely filed income tax returns?
(See this memo on Rev Proc 84-35 where this is discussed in more detail)
If your answered “Yes” to all six questions, then a quick letter to the IRS affirming each of the points will result in automatic abatement of the penalties. I have seen a 100% abatement success over the last few years with a standard letter affirming the six points, so it does seem to work very well.
For 1065 returns filed after 12/20/07, the penalty increases to $85 per partner per month late, so this is becoming more and more important to small partnerships that may not be aware of the automatic abatement.