Are There Penalties for Failing to File a 1065 on Behalf of Clients?

There is also a useful distinction between reasonable cause and simply saying that the preparer made a mistake.

The IRS instructions specifically provide for penalty relief where the partnership can establish reasonable cause.

The IRS also says certain small partnerships may qualify for a presumption of reasonable cause under Revenue Procedure 84-35 if they meet specific requirements. For example, the partnership generally must have no more than 10 partners and satisfy the other conditions in the procedure.

I wouldn't assume that “my accountant forgot” automatically qualifies.

If the partnership receives a penalty notice and believes there was reasonable cause, the IRS says the partnership can submit a written explanation requesting abatement.

There's another issue for professional preparers: if the preparer had a separate obligation under the tax rules and failed to meet it, a different preparer-related penalty could potentially apply. That's a separate analysis from the partnership's Form 1065 late-filing penalty.

So I would look at the partnership's IRS notice, the filing history, the engagement terms, who was responsible for filing, and the reason for the delay before deciding who may have exposure.

I had an IRS notice involving a late partnership return, and the notice was addressed to the partnership.

One thing that surprised me was how quickly the penalty can add up because it's based on the number of partners.

The IRS says the failure-to-file penalty continues for each month or part of a month, up to 12 months. The current IRS failure-to-file page lists $255 per partner per month for returns due after December 31, 2025.

There can also be separate consequences if the partnership doesn't furnish required Schedule K-1 information correctly and on time. The 2025 Form 1065 instructions state that a $340 penalty may apply for each Schedule K-1/K-3 involved in a failure, subject to the applicable rules.

So I'd check more than just whether Form 1065 itself was filed late.

For the preparer question, I'd review the engagement letter and the actual facts. If the client didn't provide records until after the deadline, that's different from a preparer having a complete file and simply overlooking the due date.

Either way, the IRS penalty on the partnership return shouldn't automatically be described as a personal penalty against the preparer.

From what I understand, the Form 1065 late-filing penalty is generally assessed against the partnership, not automatically against the tax preparer.

The IRS's current Form 1065 instructions say a penalty can apply when a partnership that is required to file fails to file on time, including extensions, or files a return that doesn't contain required information. The current rate for returns due after December 31, 2025 is $255 per month or part of a month, multiplied by the number of people who were partners during the tax year, for up to 12 months.

So if a partnership had five partners and the return remained late for two months, the basic calculation could be $255 × 5 × 2, assuming no applicable relief.

That doesn't mean a preparer can never have separate exposure. There are other tax-preparer penalties for certain failures involving preparation and filing responsibilities.

I'd keep the two issues separate: the partnership's IRC §6698 penalty versus any potential penalty that could apply to the preparer under a different provision.

If the partnership believes it had reasonable cause, the partnership can request abatement after receiving the IRS notice.

If a partnership has 100 partners or above, and they failed to file Form 1065, the entity is liable to pay a penalty of $100.00 for not filing each Schedule K-1 before January 1, 2011.

If you fail to file and send the Schedule L-1 to partners by the due date, then they are also liable to pay a penalty. The IRS can impose penalties of $330 for not filing Schedule K-1. The maximum penalty imposed is 3,987,000$.