What Is the Penalty for Not Filing Form 1065?

The penalty for not filing Form 1065 is $245 per partner for each month the return is late, running for up to 12 months from the due date under Internal Revenue Code Section 6698.¹ A five-partner firm that files three months late owes $3,675 from this provision alone, and a separate penalty for late Schedule K-1s stacks on top. The $245 figure is the inflation-adjusted amount for returns due in 2026.

How the Per-Partner, Per-Month Math Works

The penalty multiplies three numbers: $245, the count of partners, and the number of months (or partial months) the return is overdue. “Partners” means every person who was a partner at any point during the tax year, not just those on the books at year-end. Someone who joined in January and left in March still counts.

The maximum under this provision tops out at $2,940 per partner, which is $245 across the full 12 months. A 10-partner firm that never files hits $29,400 from Section 6698 by itself.¹ The partnership entity is the one assessed, but because partnerships are pass-through structures, the partners end up carrying the cost.

One thing to know: filing a bare-bones return to stop the clock doesn’t work. If the Form 1065 is missing the information required under IRC 6031, the IRS can treat it as unfiled and assess the full penalty anyway.¹

The Separate Penalty for Late Schedule K-1s

Partnerships must deliver a Schedule K-1 to each partner by the same due date as the Form 1065.² Missing that deadline, or furnishing K-1s with incorrect information, triggers a separate penalty under IRC 6722. The statutory base is $250 per K-1, adjusted for inflation. For recent tax years the adjusted figure has run between roughly $310 and $340 per statement.³

Fixing K-1s quickly reduces the hit. Corrections within 30 days of the furnishing deadline drop the penalty to $60 per statement. Corrections after 30 days but before August 1 carry a $130 per-statement penalty. Both tiers adjust for inflation each year.⁴

If the IRS concludes the failure was intentional, the ceiling comes off. For intentional disregard, the per-K-1 penalty is the greater of about $690 (inflation-adjusted) or 10% of the amounts that should have been reported, with no annual cap at all.³

What the Combined Bill Looks Like

The late-filing penalty and the K-1 penalty are assessed independently and they stack. Two examples, using $245 per partner per month and a conservative $310 per K-1:

A four-partner firm filing four months late: $245 × 4 × 4 = $3,920, plus $310 × 4 = $1,240 in K-1 penalties. Total: $5,160.
A 10-partner firm filing six months late: $245 × 10 × 6 = $14,700, plus $310 × 10 = $3,100 in K-1 penalties. Total: $17,800.

Every additional month adds another $245 per partner. The number scales linearly on two axes at once, which is why even a short delay is worth acting on now rather than next week.

Automatic Relief for Small Partnerships

The most useful waiver for typical small firms comes from Revenue Procedure 84-35. The IRS will presume reasonable cause and waive the late-filing penalty if the partnership meets all of the following:⁵

Ten or fewer partners, with a married couple filing jointly counted as one.
All partners are individuals (estates of individuals are allowed, but corporations, LLCs, and trusts disqualify the partnership).
Every partner’s share of income, deductions, and credits is allocated in the same proportion across the board.
Every partner reported their full share of partnership items on a timely filed personal return.

To claim the waiver, respond to the IRS penalty notice with a signed statement, under penalty of perjury, confirming the partnership qualifies under Rev. Proc. 84-35. Check this one first. It’s the cleanest path to relief for a qualifying firm, and it’s often overlooked.

First-Time Abatement and Reasonable Cause

If Rev. Proc. 84-35 doesn’t fit, two general relief routes remain.

First-Time Abatement

First-Time Abatement is available to partnerships with a clean recent record: all required returns (or valid extensions) filed for the prior three tax years, and no penalties assessed during that period.⁶ The IRC 6698 late-filing penalty is specifically listed as eligible.

The simplest way to request it is to call the number on the penalty notice. You don’t need to ask for it by name or send documents in advance; the representative reviews the account and decides eligibility on the call. You can also submit a written request or file Form 843.⁷

Reasonable Cause

If First-Time Abatement doesn’t apply, you can argue reasonable cause by showing the partnership exercised ordinary business care but still couldn’t file on time. The IRS looks at circumstances like serious illness or death of the partner responsible for the return, a natural disaster that destroyed records, or similar events genuinely outside the partnership’s control.⁸

What generally doesn’t work: blaming the tax preparer, saying you didn’t know about the requirement, or pointing out that the partnership had no income. The IRS hears those routinely and they rarely succeed. A workable request names what happened, when, and what you did to try to comply despite the obstacle, with supporting documentation such as hospital records, disaster declarations, or correspondence with a deceased partner’s estate.

If you call asking for reasonable cause relief and the representative sees you also qualify for First-Time Abatement, they’ll apply the latter, since it’s simpler.⁸

Prevent the Next One With Form 7004

For calendar-year partnerships, the 2026 filing deadline is March 16, 2026 (pushed from March 15 because that date falls on a Sunday). Filing Form 7004 before the deadline grants an automatic six-month extension to September 15, 2026.⁹ No explanation is required. The extension is automatic as long as the form is filed on time.

The extension moves both deadlines, since K-1s are due by the return’s due date including extensions.² Form 7004 is free and takes minutes. Against penalties that run into the thousands per month, there’s no reason to skip it when the deadline is close.

Criminal Exposure for Willful Failure

Civil penalties are the usual story, but deliberately refusing to file can be prosecuted as a misdemeanor under IRC 7203, which Section 6698 specifically references as an additional penalty on top of the per-partner charges. A conviction carries a fine of up to $25,000 ($100,000 for corporate partners) and up to one year in prison.¹⁰ Criminal prosecution over a partnership return is rare; the IRS reserves it for deliberate concealment of income or repeated, knowing refusal to file. The operative word is “willful,” meaning the partnership knew the return was required and chose not to file.

1
Office of the Law Revision Counsel. 26 U.S. Code 6698 – Failure to File Partnership Return
2
Office of the Law Revision Counsel. 26 USC 6031 – Return of Partnership Income
3
Office of the Law Revision Counsel. 26 USC 6722 – Failure to Furnish Correct Payee Statements
4
Internal Revenue Service. Rev. Proc. 2025-32
5
Internal Revenue Service. Understanding Your CP162B Notice
6
Internal Revenue Service. Administrative Penalty Relief
7
Internal Revenue Service. About Form 843, Claim for Refund and Request for Abatement
8
Internal Revenue Service. Penalty Relief for Reasonable Cause
9
Internal Revenue Service. About Form 7004, Application for Automatic Extension of Time to File Certain Business Income Tax, Information, and Other Returns
10
Office of the Law Revision Counsel. 26 USC 7203 – Willful Failure to File Return, Supply Information, or Pay Tax