The IRS tends to be sticklers about filing deadlines. It makes life difficult for tax preparers like me, bunching our work into a couple of highly caffeinated months. Unfortunately, even though 87% of people think it’s not okay to cheat on their taxes, I doubt a “file whenever you feel like it” policy is the way to go.
We have extensions, though, which is like an official game of “kick the can.” Since the clients I deal with are almost all good sized corporations who aren’t ready to file by the return deadline, I end up filing a lot of extensions.
The extensions are due when the returns are originally due: C Corps and S Corp tax extension deadline is 2.5 months after year end, partnership tax extension deadline is 4.5 months after year end (so March 15th and April 15th for year end preparers, respectively).
What happens if you file your tax return late? Well, if you have a missed tax extension deadline, usually you’re going to end up paying some interest and penalties. They vary for each entity type. You can do a bunch of research and come up with the numbers, or you can file and wait for the IRS to tell you what your missed tax extension will cost you (they’re so helpful like that). The interests and penalties tend to be based off of the amount you owed on your late return, so as long as all your taxes were paid in a timely matter your penalties shouldn’t be onerous.
What about partnership tax extensions, though? And what about S Corp tax extensions? What if they’re late? Neither partnerships or S Corps pay taxes on an entity level, since it’s the partners and shareholders that pay the tax. So there can be no interest on the partnership and S Corp late taxes (I know, I know, occasionally there is entity level tax).
That’s true. Instead, the IRS issues a penalty per partner/shareholder per month late (It was $195 per person per month last I checked, but it might have changed).
However, I discovered a little trick. If you have a missed tax extension deadline for a partnership, you can potentially get out of that late partnership tax extension penalty. Rev. Proc. 84-35 states that a partnership with 10 or fewer partners are not subject to the partnership late filing penalty (under IRC 6698(a)(1), FYI) as long as the entity had no tax due and each partner fully reported his or her share of partnership income.
So, what happens if you file your tax return late in that particular case is nothing. Yes, you’ll still get a notice, but just write back and tell the IRS that your partnership qualifies under Rev. Proc. 84-35.
Of course, this is a fairly narrow set of circumstances, like when your associate tells you that they e-filed the extension but they really didn’t (lesson learned: associates are all liars).
S Corps, unfortunately, do not get the same protection. Not really sure why, since they’re basically the same as a partnership for tax payment purposes. It’s been my experience, though, that they’ll waive any penalties on your late filing the first time that you file late. So they’re not totally unreasonable.
As a side note, tax extensions are an extension of filing your taxes, not paying your taxes. So even if you don’t have a missed tax extension deadline, if you hadn’t completely paid your taxes by the original filing date you’ll still owe some interest.
Photo by Katherine