If you run your business as a partnership or S corporation, sooner or later you might receive Notice CP162 from the IRS. Like all notices from the government, it needs to be carefully reviewed and, if necessary, addressed with help from a tax attorney.
CP162 indicates that your company has been charged a penalty for one of the following reasons:
- Your return was late
- Your return was incomplete
- You didn’t file the return electronically when required to do so
For partnerships, the penalty is $210 for each month or portion of a month that the return is delinquent or missing information, multiplied by the number of partners for that tax year, for up to 12 months.
For S-corporations that have no taxes due, the penalty is $200 for each month or portion of a month that the return is late or is missing information, multiplied by the total number of shareholders. If tax is due, the penalty is $200 plus 5% for the same time period, up to a maximum of 25% of the unpaid tax.
If you agree with the penalty, you can pay it within 21 days and avoid additional interest charges. If you received the notice because information was missing from the business return, submit it as soon as possible, otherwise the penalty will accrue for up to 12 months. If you believe you had reasonable cause for filing late, you can request abatement of the penalty.
Revenue Procedure 84-35
If your partnership has no more than 10 partners and you were penalized for filing late or failing to include necessary information, you may be able to obtain a waiver of the penalty under Revenue Procedure 84-35, which states that reasonable cause for these errors will be presumed if the partnership or any of the individual members can demonstrate that all of the conditions below have been met:
- The partnership was limited to 10 partners for that tax year. Married couples filing together count as a single partner.
- Each partner was a U.S. citizen, lawful permanent resident, or the estate of either one.
- Each partner’s share of each partnership item is equal to their share of every other item.
- All partners have filed their personal income tax returns on time.
- All partners accurately reported their share of the income, deductions, and credits of the partnership.
If the partnership and its members meet all of these conditions, it can request removal of the penalty for reasonable cause under Revenue Procedure 84-35.
It is important to note that this form of relief only applies to partnerships. S-corporations can review other options with a New Jersey tax attorney.
What If You Disagree With Your CP162?
If you don’t agree with the notice, you can send a written dispute or have a partner or authorized officer contact the IRS to discuss the situation. Accepted grounds for disputing the assessment include:
- The company has fewer than 100 partners, bypassing the requirement to file electronically.
- You received a waiver of the electronic filing requirement for the tax year referenced in the notice.
- You believe that any information missing from the return was not required.
- The tax return was filed on time, contrary to what the IRS believes
Depending on the grounds for your dispute, you will need to present evidence backing your claim, such as proof of the number of partners during the tax year in question, a copy of the waiver, a reason why the missing information was not necessary, and documentation proving that you filed the return on time or received an extension.
Speak with a New Jersey IRS Notice Attorney
If you have received a Notice CP162, it is always advisable to consult an experienced tax attorney who will determine if your partnership or S-corporation qualifies for a penalty abatement and can represent you in further communications with the IRS. Attorney Brad Paladini at Paladini Law has counseled several small businesses during their dealings with the IRS and will help you identify all applicable options for penalty relief. To schedule a consultation, please call 201-381-4472 or complete our online form.