Several Years of Unfiled Form 1065 or 1120-S Returns: How to Catch Up Without Making It Worse

A lot of owners stop filing the partnership or S corporation return the year things get messy. A partner leaves. The bookkeeper quits. Business slows down. One year turns into three, and now you are afraid that filing will only ring the bell.

That fear is understandable. It is also backward. The penalties for late entity returns are capped per year, but the IRS's time to act on a return that was never filed is not. Waiting does not make the problem smaller. It just makes it older.

Each Year Is Its Own Penalty

A late Form 1065 is penalized under IRC 6698. A late Form 1120-S is penalized under IRC 6699. Each penalty is calculated separately for each tax year: a base amount per month the return is late, times the number of partners or shareholders during that year, for up to 12 months.

The base amount depends on when the return was due. IRM 20.1.2.4.2 (partnerships) and IRM 20.1.2.6.2 (S corporations) list the same base rates:

Return due (without regard to extensions)	Base penalty per owner, per month
During 2020	$205
2021 through 2022	$210
During 2023	$220
During 2024	$235
During 2025	$245
During 2026	$255
After 2026	$260

The 2026 and 2027 figures also appear in Rev. Proc. 2024-40 and Rev. Proc. 2025-32. Notice that the rate follows the year the return was due, not the tax year. A 2023 calendar-year return was due in 2024, so it uses $235.

Now do the math for a three-member LLC that never extended and skipped its 2022, 2023, and 2024 returns, then files all three in late 2026. Each year is more than 12 months late, so each one hits the 12-month cap:

• 2022 return (due 2023): 3 partners times 12 months times $220 equals $7,920
• 2023 return (due 2024): 3 times 12 times $235 equals $8,460
• 2024 return (due 2025): 3 times 12 times $245 equals $8,820

That is $25,200 in penalties on a business that may not have owed any income tax at all. Add a partner and the number climbs again.

Why "Just Leave It Alone" Does Not Work

The limitations period never starts

Under IRC 6501(a), the IRS generally has three years to assess tax after a return is filed. Under IRC 6501(c)(3), when no return is filed, tax may be assessed at any time. For partnerships under the centralized audit regime, IRC 6235(c)(3) says the same thing: if the partnership fails to file a return, an adjustment may be made at any time. For S corporations, IRC 6037(a) treats Form 1120-S as a return under IRC 6012 for limitation purposes. The clock is tied to the return. No return, no clock.

The owners' returns are exposed

Partners in a partnership subject to the centralized audit regime are required to report partnership items consistently with the partnership return (IRC 6222). Treas. Reg. 301.6222-1(a)(3) states that when the partnership does not file a return, the partner's treatment of those items is per se inconsistent. The Schedule K-1 instructions tell partners and S corporation shareholders to file Form 8082 to note that the entity has not filed. Every owner is carrying a problem on their personal return until the entity catches up.

The owners can be pulled into collection

The IRC 6698 penalty is assessed against the partnership. But IRM 20.1.2.4 states that, for enforced collection, partners are held individually liable for the penalty to the extent of their liability for the partnership's debts. Whether that reaches you depends on the entity type and state law. Our guide on owner liability for LLC and partnership tax debts covers how that works.

A Sensible Order for Catching Up

1. Figure out which years are actually required. IRC 6031 requires a return from every partnership for each taxable year. IRC 6037 does the same for S corporations. If the entity dissolved, changed classification, or was never a partnership for tax purposes, the filing obligation may differ. Classification problems are covered in our guide to LLC classification problems and Form 8832.
2. Rebuild the books. You need income, expenses, balance sheets, capital accounts, and each owner's share for every open year. Bank statements are usually the backbone.
3. Prepare every year, then file. Each return builds on the one before it through capital accounts and basis. Preparing in sequence keeps the numbers consistent.
4. Furnish K-1s to every owner. Partners and shareholders need them to correct their own returns. Late K-1s carry their own exposure under IRC 6722; see failure to furnish K-1 penalties.
5. Do not attach a penalty explanation to the returns. The 2025 Form 1065 instructions say to wait for the penalty notice and then send the explanation.
6. Request relief year by year. Each year's penalty is a separate decision.

What Relief Looks Like When You Are Several Years Behind

First Time Abate usually helps with one year at most

Under IRM 20.1.1.3.3.2.1, First Time Abate is available for the late-filing penalties under IRC 6698(a)(1) and IRC 6699(a)(1). But the entity must have filed the same return for the three preceding years with no unreversed penalties. If you missed three years in a row, the earliest missed year might qualify. The later ones generally will not, because the earlier non-filing breaks the clean history. FTA also does not apply to the incomplete-return penalties under IRC 6698(a)(2) and IRC 6699(a)(2), according to IRM 20.1.2.4.3 and IRM 20.1.2.6.3.

Reasonable cause has to explain the whole gap

Both IRC 6698 and IRC 6699 excuse the penalty if the failure was due to reasonable cause. IRM 20.1.2.4.3 adds a point that matters for catch-up cases: reasonable cause is not demonstrated, and cannot be presumed, as long as the failure continues. In plain English, you have to file before you can credibly ask. And the reason you give has to cover the entire period of non-filing, not just the month things fell apart. See reasonable cause for late entity returns.

Small partnerships have a separate path

Rev. Proc. 84-35, reproduced in IRM Exhibit 20.1.2-1, treats certain domestic partnerships with 10 or fewer partners as meeting the reasonable cause test if every partner fully reported their share of partnership income, deductions, and credits on timely filed returns. Partnerships with a corporation or trust as a partner, tiered partnerships, and partnerships with non-proportional allocations do not qualify. IRM 20.1.2.4.3.1 also warns that the penalty will be reassessed if the IRS later finds a partner did not meet the criteria. The details are in our guide to small partnership relief under Rev. Proc. 84-35.

S Corporation Catch-Up Has Its Own Traps

Shareholders face the same consistency rule. IRC 6037(c) requires a shareholder to treat S corporation items consistently with the corporate return and lets the shareholder file a statement identifying the inconsistency, including when the corporation has not filed. Without that statement, IRC 6037(c)(3) allows the IRS to assess the difference as a math error.

Unfiled years also tend to hide other problems: missing shareholder wages, distributions that exceed basis, or doubts about whether the S election was ever valid. Catching up is the time to find those, not the time to paper over them.

If your entity is several years behind, call the Law Offices of Darrin T. Mish, P.A. in Tampa, Florida at 813-229-7100. The returns do not get easier to reconstruct with time. Neither do the conversations with your partners.