IRS Notice CP162 Guide

IRS Notice CP162: Why You Received and How to Respond

The IRS sends Notice CP162 when it assesses penalties for partnership, S-corp, and Real Estate Mortgage Investment Conduits (REMIC) returns that were late, incomplete, or not filed electronically. The notice outlines your penalties and explains what you should do next.

If you’ve received Notice CP162 from the IRS, the tax attorneys from The W Tax Group can help you request penalty abatement and get back into compliance. To get help, contact us today.

What to Do If You Receive Notice CP162

If you agree with the penalties assessed on the notice, you should pay your penalty by the due date. You can pay online through the EFTPS system, or mail a check using the voucher with the notice.

Note that even if the penalties were applied correctly, you may still want to apply for penalty abatement. The IRS tends to be particularly forgiving for first offenses.

If you received the notice because your return was late or incomplete, you should file your return immediately or provide the IRS with the information it needs to complete your return. If you disagree with the notice, you should reach out to a tax attorney or call the IRS at (800) 829-0922.

Why Did You Receive Notice CP162?

The IRS sends Notice CP162 when it assesses penalties to partnerships, S-corps, and REMICs for the following reasons:

Late Filing of Partnership, S-Corp, and REMIC Returns

Partnership and S-Corp returns are due by the 15th day of the third month after the end of the tax year. If you use the calendar year, your return is due March 15th. You may have received this notice if you filed your return after that date.

Incomplete Partnership, S-Corp, or REMIC Returns

If you did not include the required information on your tax return, the IRS may send you Notice CP162. You are required to include all of the information listed on the instructions for your return. To get an overview of the required information, you can check out the instructions for Form 1065 (U.S. Return of Partnership Income), the instructions for Form 1120-S (U.S. Income Tax Return for an S-Corp), or the instructions for Form 1066 (U.S. Real Estate Mortgage Investment Conduit REMIC Income Tax Return).

Failure to E-File

Partnerships and S-corps with over 100 partners or members must e-file their returns unless they have a waiver. If you were supposed to e-file and you paper filed, the IRS may assess a penalty and send you this notice.

How to Respond to Notice CP162

The right response to Notice CP162 depends on your situation. Here is an overview of how to respond to Notice CP162.

  • Unfiled Return — File your return as soon as possible. Then, pay the tax and penalties due, or request penalty abatement.
  • Late filed return — Pay the late penalty or request penalty abatement.
  • Incomplete return — Provide the IRS with the requested details. If you don’t have all the details, submit a written explanation of why.
  • Failure to e-file — Pay the penalty. Or prove that you are not required to e-file by sending a copy of your e-filing waiver or proof that you had 100 or fewer partners or shareholders in the tax year.

A tax attorney from The W Tax Group can help you decide how to respond to Notice CP162. They can help you complete your return, request penalty abatement, or take other steps to get back into compliance with the IRS.

Who Can Respond to IRS Notice CP162?

If you have a designated tax matters partner, they should respond to this notice. Otherwise, any partner or corporate officer authorized to bind the corporation can call. If you want to have a tax attorney or someone else respond to the IRS, you will need to authorize them using Form 2848 (Power of Attorney and Declaration of Representative).

Penalties Related to Notice CP162

Notice CP162 will outline the penalties that have been assessed on your account. As of 2022, the penalty for filing a late or incomplete partnership return is $210 per partner per month, up to 12 months. Depending on your number of partners and how late you file, the penalty can grow very large very quickly. For example, a 10-member partnership that files six months late may incur penalties of $12,600.

If you are required to file electronically and you don’t, the penalty is $260 per partner over the 100-partner threshold. For instance, if you have 105 partners and you didn’t e-file, the penalty would be five times $260 or $1300. Note that all of these penalty amounts are indexed to inflation and subject to change.

Note that the IRS will provide e-filing waivers to S-corps or partnerships experiencing a hardship that prevents them from e-filing. Ideally, you should apply for the waiver before you file, but if you’ve already been assessed the penalty, you can request abatement retroactively.

Interest will accrue on the assessed penalties until they are paid.

How to Request Penalty Abatement after Receiving CP162

If you want to request penalty abatement related to the penalties outlined on Notice CP162, you should send the IRS a list of the penalties you want to be abated and an explanation of why the IRS should remove the penalties. If the IRS believes that you had reasonable cause for the actions that lead to the penalty, the agency will remove the penalties.

The IRS will assume that a partnership had reasonable cause to submit a late or incomplete return if the following conditions are met:

  • The partnership has 10 or fewer partners — Married couples filing a joint return count as a single partner.
  • Each partner is a natural person or the estate of a natural person, excluding non-resident aliens.
  • Each partner’s proportionate share of any partnership item is the same as their proportionate share of other partnership items — For example, each partner’s share of income is the same as their share of expenses.
  • All partners reported their share of partnership items on their personal income tax returns that were filed on time.
  • The partnership did not elect to be subject to the rules for consolidated audit proceedings — By electing out of these rules, the partnership agrees that each individual partner will be subject to an audit if the partnership is audited. As of 2018, this is an election that small partnerships can make on the partnership return if they meet all of the eligibility criteria.

If you meet these criteria, note that you are applying for penalty abatement under the rules of Rev. Proc. 84-35. If the IRS removes penalties based on this rule and then realizes that you made a false statement, the penalties will be reassessed along with an additional false-statement penalty.

Get Help with Notice CP162

If you receive Notice CP162, you should respond promptly. Failure to respond can lead to additional penalties or other issues with the IRS. At The W Tax Group, we have extensive experience helping businesses deal with the IRS.

You don’t have to respond to Notice CP162 on your own. Instead, get help now — contact us at The W Tax Group today.