Late filing Penalty for S Corp

Time is running out and the tax returns for S Corporation are due soon.
The final deadline to file S Corp tax returns (Form 1120S) is September 15th, 2010 if an extension was requested.

S Corporation's no longer enjoy the luxury to file late and not pay the penalty. One of the recent changes by the IRS is charging penalty on late filing of the S Corporation tax returns.

For tax years beginning after 2009, the late filing penalty for an S corporation return is $195 for each month or part of a month (up to 12 months) the return is late (or does not contain the required information) multiplied by the total number of persons who were shareholders in the corporation during any part of the corporation's tax year

So for a S Corp with two or more stockholders this penalty could add up to an exhorbitant amount.

Relief from penalty is available only if the S Corp shows that the late filing was due to reasonable cause.

Late Filing Penalty for Partnership

Time is running out and the tax returns for partnership are due soon.
The final deadline to file partnership tax returns (Form 1065) is September 15th, 2010 if an extension was requested.

Partnership no longer enjoy the luxury to file late and not pay the penalty.

For tax years beginning in 2009, the late filing penalty for a partnership return is $89 for each month or part of a month (up to 12 months) the return is late (or does not contain the required information) multiplied by the total number of persons who were partners in the partnership during any part of the partnership's tax year.

For tax years beginning after 2009, the late filing penalty for a partnership return is $195 for each month or part of a month (up to 12 months) the return is late (or does not contain the required information) multiplied by the total number of persons who were partners in the partnership during any part of the partnership's tax year.

So for a partnership with two or more partnership this penalty could add up to an exhorbitant amount.

Relief from penalty is available only if the partnership shows that the late filing was due to reasonable cause.

Rev. Proc. 84-35 - Reasonable cause safe harbor for Small Partnerships

Rev. Proc. 84-35 provides a reasonable-cause safe harbor for certain small partnerships. Under this procedure, a domestic partnership composed of 10 or fewer partners, each of whom is a natural person (other than a nonresident alien) and each of whom has fully reported his or her share of the income, deductions, and credits of the partnership on timely filed income tax returns(including extension), is considered to have met the reasonable cause test and is not subject to the penalty under Sec. 6698.

If a partnership of 10 or fewer partners fails to qualify for relief under Rev. Proc. 84-35, the partnership may still show reasonable cause for failure to file a timely and complete return (Rev. Proc. 84-35, §3.03).

Though S Corp are also considered pass thru entities there is no clear guidance if the S Corp can also qualify for this safe harbor and get relief from any statutory penalty for the late or incomplete filing of Form 1120S.