If you run yourbusiness as a partnership or S corporation, sooner or later you might receive Notice CP162 from the IRS. Like all noticesfrom the government, it needs to be carefully reviewed and, if necessary,addressed with help from a tax attorney.
CP162 indicates thatyour 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 returnelectronically when required to do so
For partnerships, the penalty is $210 for eachmonth or portion of a month that the return is delinquent or missinginformation, multiplied by the number of partners for that tax year, for up to12 months.
For S-corporationsthat have no taxes due, the penalty is $200 for each month or portion of amonth that the return is late or is missing information, multiplied by thetotal number of shareholders. If tax is due, the penalty is $200 plus 5% forthe same time period, up to a maximum of 25% of the unpaid tax.
If you agree withthe penalty, you can pay it within 21 days and avoid additional interestcharges. If you received the noticebecause information was missing from the business return, submit it as soon aspossible, otherwise the penalty will accrue for up to 12 months. If you believeyou had reasonable cause for filing late, you can request abatement of thepenalty.
If your partnershiphas no more than 10 partners and you were penalized for filing late or failingto include necessary information, you may be able to obtain a waiver of thepenalty under Revenue Procedure 84-35, which states thatreasonable cause for these errors will be presumed if the partnership or any ofthe individual members can demonstrate that all of the conditions below havebeen met:
- The partnership was limited to 10partners for that tax year. Married couples filing together count as a singlepartner.
- Each partner was a U.S. citizen,lawful permanent resident, or the estate of either one.
- Each partner’s share of eachpartnership item is equal to their share of every other item.
- All partners have filed theirpersonal income tax returns on time.
- All partners accurately reportedtheir share of the income, deductions, and credits of the partnership.
If the partnershipand its members meet all of these conditions, it can request removal of thepenalty for reasonable cause under Revenue Procedure 84-35.
It is important tonote that this form of relief only applies to partnerships. S-corporations canreview other options with a New Jersey tax attorney.
WhatIf You Disagree With Your CP162?
If you don’t agreewith the notice, you can send a written dispute or have a partner or authorizedofficer contact the IRS to discuss the situation. Accepted grounds fordisputing the assessment include:
- The company has fewer than 100partners, bypassing the requirement to file electronically.
- You received a waiver of theelectronic filing requirement for the tax year referenced in the notice.
- You believe that any informationmissing from the return was not required.
- The tax return was filed on time,contrary to what the IRS believes
Depending on thegrounds 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 copyof the waiver, a reason why the missing information was not necessary, anddocumentation proving that you filed the return on time or received anextension.
Speakwith a New Jersey IRS Notice Attorney
If you have receiveda Notice CP162, it is always advisable to consult an experienced tax attorneywho will determine if your partnership or S-corporation qualifies for a penaltyabatement and can represent you in further communications with the IRS. Attorney BradPaladini at Paladini Law has counseled several small businesses during their dealings withthe IRS and will help you identify all applicable options for penalty relief.To schedule a consultation, please call 201-381-4472 or complete our onlineform.