What Is IRS Notice CP162 and How Should You Respond?
Learn why you received IRS Notice CP162, what penalties it involves, and the steps you can take to respond or request relief.
Receiving a notice from the IRS can be unsettling, especially when penalties are involved. IRS Notice CP162 is issued to entities that fail to meet filing requirements, often resulting in financial consequences. Understanding this notice and addressing it promptly can help minimize costs and complications.
Taking the right steps is key, whether that means paying the penalty, disputing it, or requesting relief.
Reasons You May Receive IRS Notice CP162
The most common reason for receiving IRS Notice CP162 is failing to file a required return on time. This notice is typically sent to partnerships, S corporations, and other entities required to file informational returns like Form 1065 or Form 1120-S. When these returns are late, the IRS imposes a penalty based on the number of partners or shareholders and the length of the delay. In 2024, the penalty is $220 per partner per month, up to 12 months.
An incomplete return can also trigger this notice. If required schedules or attachments are missing, the IRS may treat the return as unfiled, leading to the same penalties as a late submission. A common issue is the omission of Schedule K-1, which reports each partner’s share of income, deductions, and credits. If this form is missing or contains errors, Notice CP162 may be issued, even if the main return was filed on time.
Electronic filing errors are another factor. Many entities must file electronically, and failing to do so can result in penalties. For example, partnerships with more than 100 partners are required to e-file. If a paper return is submitted instead, the IRS may reject it and issue Notice CP162.
Penalty Details
The penalty for failing to file on time is calculated per partner or shareholder, per month, and accrues for up to 12 months. As of 2024, it is $220 per person. A partnership with five partners that files six months late would owe $6,600 (5 partners × $220 × 6 months).
These penalties are imposed under Internal Revenue Code (IRC) Section 6698 for partnerships and Section 6699 for S corporations. While automatic, they may be reduced or removed under certain circumstances, such as reasonable cause exceptions. Entities with a history of compliance or those facing circumstances beyond their control may qualify for relief.
Additional penalties may apply if late filing delays individual partners’ or shareholders’ tax filings, potentially leading to further penalties and interest on unpaid amounts.
How to Respond
Review the notice carefully. IRS Notice CP162 includes details on the penalty assessment, such as the tax period, entity type, and total amount due. Errors can occur, so verifying the accuracy of this information is important. If the IRS miscalculated the number of partners or shareholders, the penalty may be overstated. Comparing the notice with previously filed returns can help identify discrepancies.
If the penalty is valid, submitting payment by the due date will prevent additional complications. The IRS accepts payments through the Electronic Federal Tax Payment System (EFTPS), direct debit, or check. Entities unable to pay in full may explore an installment agreement. While late-filing penalties are not typically eligible for payment plans, any associated tax balances could be included. Ensuring future filings are submitted correctly and on time can prevent recurring penalties.
If the penalty was assessed in error, contacting the IRS is necessary. The notice includes a phone number and mailing address for inquiries, and written correspondence may be required to formally dispute the charge. Supporting documentation is key. If an entity filed on time but the IRS did not process the return correctly, proof of timely submission—such as certified mail receipts or electronic filing confirmations—can help resolve the issue. Keeping records of all communications with the IRS ensures responses are documented.
Requesting Relief
Entities may qualify for penalty relief if they can demonstrate reasonable cause or qualify for administrative waivers. The IRS considers reasonable cause when an entity can show that it exercised ordinary business care and prudence but was still unable to meet its filing obligation. Circumstances such as natural disasters, serious illness of a key individual, or destruction of records may support a reasonable cause claim. Providing detailed explanations along with supporting documents—such as hospital records, insurance claims, or affidavits—can strengthen a request for relief.
The First-Time Abatement (FTA) waiver is another option. This waiver is available to entities that have filed required returns on time and have not been assessed significant penalties in the past three years. If eligible, they can request penalty abatement without proving reasonable cause. The FTA request can be made by calling the IRS or submitting a written appeal. If approved, the penalty is removed. This waiver is particularly useful for partnerships and S corporations that inadvertently miss a filing deadline but have otherwise remained compliant.