Have a Tax Question? Ask a Tax Expert
Hello and thanks for trusting me to help you today. I am a tax adviser with over 15 years of experience.Unfortunately, when S corporations fail to file Form 1120S by the due date or by the extended due date, the IRS will impose a minimum penalty of $195 for each month or part of the month the return is late multiplied by the number of shareholders.The penalty for not paying is based on any amount of tax due and not paid on time.
An S corp can request abatement of the penalty. An S corp is also allowed the first time abatement for penalties.
This refers to if the S corp has never requested abatement in the past and this is the first time they have needed to request the relief.
Asking for abatement of the penalty can be as easy as calling the number on the notice and speaking with the agent.
As the penalty the IRS is assessing is on the late filing and no tax due then you can request they abate the penalty and when you request the penalty abatement you would want to bring to their attention that the S corp has not made this request in the past and is generally compliant with tax filing and business practices (as long as the S corp is and has been on top of any filings in the past).
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Why is there a penalty if no tax was due?
The penalty is just for not filing on time. This is a set penalty and is not dependent on any tax due. Please make sure you read the section about asking for abatement. The IRS is allowed to over look collecting the penalty. The request is simple.
Is your thinking that I should have advised that the iRS has no legal standing to assess the penalty on the S corp?
The penalty was automatically applied because the S corp neither requested extension nor did it file on time. The penalty can be abated and that good news should be helpful to you.
Please let me know if you need more information on how to request the abatement and not pay the penalty.
The law on the penalty just for not filing on time is found under IRC 26 USC 6699http://www.law.cornell.edu/uscode/text/26/6699