S-Corp Late Filing Penalties: When Reasonable Cause May Help

The IRS may remove a late-filing penalty when circumstances beyond the company’s control prevented timely filing—but not every explanation qualifies.

When Reasonable Cause May Help

An S corporation generally must file Form 1120-S by the 15th day of the third month after the end of its tax year. For a calendar-year S corporation, that is normally March 15, unless the date falls on a weekend or legal holiday. A timely filed Form 7004 generally provides a six-month extension to file.

If Form 1120-S is filed late, the IRS may issue a notice such as CP162A and assess a penalty—even when the corporation owes no federal income tax. The penalty is generally calculated for each month or part of a month the return is late, multiplied by the number of shareholders, for up to 12 months. The dollar amount is adjusted periodically. For 2025 Form 1120-S returns due in 2026, the IRS instructions list a penalty of $255 per shareholder for each month or part of a month.

What Is “Reasonable Cause”?

The IRS considers reasonable cause on a case-by-case basis. In general, the company must show that it exercised ordinary business care and prudence but was nevertheless unable to file on time.

A persuasive request should clearly explain:

• What happened, including specific dates;

• How the event directly prevented timely filing;

• What steps the company took to comply before and during the problem;

• When the obstacle ended;

• How quickly the return was filed afterward; and

• What procedures were adopted to prevent the problem from happening again.

Supporting documents are important. Depending on the circumstances, these might include hospital records or a physician’s letter, insurance or fire reports, correspondence showing efforts to obtain unavailable records, system-error documentation, and proof of prompt corrective action.

Potentially Acceptable Example

Unexpected serious illness of the responsible officer

ABC, Inc. is a single-shareholder S corporation. Ten days before the extended filing deadline, its president—the only person authorized to provide final records and approve the return—was unexpectedly hospitalized and incapacitated. Before the hospitalization, the company had maintained its books, engaged a tax professional, and was actively completing the return. The president remained unable to act through the filing deadline. The company notified its tax professional, supplied hospital documentation, completed the missing approval promptly after the president recovered, and filed the return within several days. It also authorized a backup officer for future filings.

Why this may qualify: The event was sudden and outside the company’s control; the company had taken reasonable steps before the emergency; the illness directly caused the delay; the return was filed promptly after the obstacle ended; and the explanation can be documented.

Approval is not automatic. The IRS will evaluate all facts and circumstances.

Generally Unacceptable Example

The owner was busy and assumed the preparer filed an extension

XYZ, Inc.’s owner was occupied with customers and day-to-day operations. The owner assumed the tax preparer had filed an extension but did not confirm it, provide the requested accounting records, or obtain proof of filing. Several months later, after receiving an IRS notice, the company submitted the missing information and filed the return.

Why this generally does not qualify: Being busy, overlooking a deadline, misunderstanding the filing requirement, or relying on a tax professional to meet a known filing deadline generally does not establish reasonable cause by itself. The company remains responsible for timely filing and should obtain confirmation that the return or extension was submitted.

What Should You Do After Receiving CP162A?

1. Confirm the tax year, penalty type, filing deadline, and IRS filing date shown on the notice.

2. Verify whether a timely extension or return was filed. If the IRS record is wrong, gather proof of timely electronic filing or mailing.

3. If the return was late, identify the precise event that caused the delay and collect supporting documents.

4. Respond by the notice deadline and follow the notice instructions. You may make a reasonable-cause request in writing; you may also request certain relief by calling the number shown on the notice.

5. Do not exaggerate or create facts. A weak but truthful case should be evaluated for any other available administrative relief.

Important Distinction

Reasonable-cause relief is different from administrative relief based primarily on a good prior compliance history. A company that does not have strong reasonable-cause facts may still qualify for another form of penalty relief, depending on the tax year, penalty, and IRS account history.

How We Can Help

If your S corporation received CP162A or another late-filing notice, our office can review the company’s filing history, determine whether the facts support reasonable cause or another available relief provision, prepare the abatement request, organize supporting documentation, and communicate with the IRS when authorized.

Contact our office promptly and send us a complete copy of the notice. Do not ignore IRS response deadlines.