Relief from partnership late-filing penalties.

• Author: Boman, Thomas A.

If a partnership files its return after the original due date, either without a timely extension request or after the extension period expires, the IRS will likely assess a late-filing penalty under Sec. 6698, assuming the partnership's failure to file the return was not willful (thus, Sec. 7203 criminal penalties would not apply). As will be discussed, Rev. Proc. 84-35 may assist partnerships in avoiding the Sec. 6698 late-filing penalty in certain circumstances.

Filing Rules

Under Sec. 6031(a), a partnership is required to file a return annually and, according to Sec. 6031 (b), provide partners with a Schedule K-1. Regs. Sec. 1.6031 (a)-1 (e) (2) states the due date is the 15th day of the fourth month following the close of the partnership's tax year. Accordingly, for calendar-year partnerships, the return's due date is April 15 of the following year. Partnerships can automatically extend this date initially for three months by filing Form 8736, Application for Automatic Extension of Time To File U.S. Return for a Partnership, REMIC, or for Certain Trusts, on or before the original due date. Because this extension is automatic, the partnership does not have to provide a reason. The first extended due date is July 15 of the following year.

A partnership needing a second extension has to file Form 8800, Application for Additional Extension of Time To File a U.S. Return for a Partnership, REMIC, or for Certain Trusts, by the end of the first extension period, to request an extension of up to another three months. According to Form 8800's instructions, the partnership has to provide reasonable cause for requesting the second extension. If the full three-month period is granted, a calendar-year partnership can extend its return until October 15 of the following year.

If the partnership does not follow these rules (but is not willful), the Service will likely assess a Sec. 6698 penalty, which is $50 per month (or fraction of a month)--not to exceed five months--multiplied by the number of partners in the partnership during any part of the tax year.

Example: A calendar-year partnership with 10 partners discovers on Aug. 1, 2004, that its 2003 Form 1065, Partner's Share of Income (Loss) From an Electing Large Partnership, was not timely extended by April 15, 2004. It files that form by the end of August 2004. The IRS assesses a penalty of $2,500 (10 partners x 5 months x $50).

Late-Filing Relief

According to Sec. 6698(a), the Service will waive...