Thousands of partnerships miss their filing obligations every year, and the IRS assesses millions of dollars in penalties for late or unfiled Form 1065 returns. For tax years 2010 through 2024, the late filing penalty is calculated monthly and per partner — quickly adding up to thousands of dollars, even if the partnership had little or no income. These penalties apply regardless of whether you owe any tax.

Unfiled 1065 partnership returns are a serious compliance issue because partnerships must report their income, deductions, and credits annually. Even though a partnership does not pay federal income tax, it must file Form 1065 to provide the IRS and all the partners with an accurate record of each partner’s share of income and other partnership items. Missing the filing deadline or failing to file can lead to automatic IRS penalties, interest charges on any unpaid tax, and potential substitute returns prepared by the IRS that may overstate what you actually owe.

This guide explains unfiled 1065 partnership returns, why you may have received notices from the IRS, the financial consequences of ignoring them, and the relief options available to you. You will also find actionable steps to bring your partnership back into compliance, reduce penalties where possible, and avoid future issues. Whether dealing with one or multiple partners across several tax years, acting quickly can help minimize the penalty amount and protect your business.

What Are Unfiled 1065 Partnership Returns? 

Unfiled 1065 partnership returns refer to required federal partnership tax returns (Form 1065) that have not been submitted for one or more tax years. Form 1065, officially the “U.S. Return of Partnership Income,” is used to report a partnership’s income, deductions, credits, and other tax items. Even though partnerships do not pay income tax, the Internal Revenue Service (IRS) requires that they file this form annually to document each partner’s share of profits or losses.

Definition and Filing Requirements

A partnership must file a Form 1065 for every taxable year it is active, even if there is no income or activity. This includes multi-member LLCs that are taxed as partnerships. The standard due date is March 15, or the 15th day of the third month after the end of the partnership’s tax year. Extensions are available but must be requested before the original due date. The partnership must also issue Schedule K-1 forms to all the partners so they can report their share of partnership income, deductions, and credits on their personal tax returns.

Who Must File

The filing requirement applies to small partnerships, professional service partnerships, and businesses with multiple members. Even partnerships with fewer partners or those with a deceased partner for part of the year must still file for that taxable year. If a return is not filed, the failure continues each month until the return is received, and the penalty is assessed based on the total number of partners in the partnership.

Why Did You Receive IRS Notices for Unfiled Returns?

If your partnership has unfiled 1065 partnership returns, the IRS will eventually notify you of the missing filings and any assessed penalties. These notices are generated automatically once the filing deadline passes and no return is on record. The penalty is assessed monthly based on the applicable base penalty rate and continues until the IRS receives the return or the maximum penalty period is reached.

Failure-to-File vs. Failure-to-Pay

The IRS treats failure to file and failure to pay as separate issues. Even if your partnership owes no tax, you can still face a late filing penalty for failing to submit Form 1065 on time. Interest charges and late payment penalties are added to the filing penalty if you owe tax.

• Applicable Base Penalty Rate: For tax year 2024, the penalty is $245 per partner per month (up to 12 months).
  
  
• Calculation Example: A partnership with four partners that files six months late could owe: $245 × 4 partners × 6 months = $5,880.
  
  
• Failure Continues: The penalty increases each month the return is unfiled until it reaches the maximum allowed by law.

Common Reasons for Missing Returns

For many reasons, partnerships fail to file on time, but the IRS does not automatically waive penalties. You may still be able to request penalty relief if you can establish reasonable cause.

• Lack of awareness of partnership filing requirements
  
  
• Missing financial records or partner information
  
  
• Natural disaster or casualty event affecting business operations
  
  
• Belief that no filing was needed because there was no income
  
  
• Reliance on a tax preparer who did not submit the return

Consequences of Ignoring Unfiled 1065 Partnership Returns

When unfiled 1065 partnership returns are ignored, the IRS escalates its response. Penalties accumulate monthly, interest compounds on unpaid tax, and enforcement actions can begin quickly. The longer the delay, the higher the penalty amount, and the more difficult it becomes to resolve the issue.

IRS Penalties and Calculations

The failure-to-file penalty is among the harshest partnership penalties in the Internal Revenue Code.

• Monthly Penalty: This is calculated per partner per month late, up to a 12-month maximum.
  
  
• Penalty Amount Example: A three-partner business that files nine months late would owe: $245 × 3 partners × 9 months = $6,615 just in late filing penalties for that tax year.
  
  
• Unpaid Tax Consequences: If tax is due, interest accrues daily, and additional late payment penalties apply until paid in full.
  ‍

‍
State-Level Penalties

Many states also require a partnership return and impose separate penalties for failing to file:

• California: A minimum of $800 in annual tax applies, along with late filing penalties.
  
  
• New York: Filing penalties may be assessed, and franchise taxes can also apply.
  
  
• Texas: A franchise tax return is required, with possible additional penalties.

California

• Minimum Penalty / Tax Obligation: $800 minimum tax per taxable year.
• Notes: Additional monthly penalties apply until the return is filed.

New York

• Minimum Penalty / Tax Obligation: Late filing penalties plus the required franchise tax.
• Notes: Noncompliance can also affect partner compliance status.

Texas

• Minimum Penalty / Tax Obligation: Franchise tax return is required.
• Notes: Failure to file may trigger separate collection notices.

Collection Actions

If penalties remain unpaid, the IRS can take aggressive collection steps:

• Bank account levies and wage garnishments
  
  
• Federal tax liens affecting credit and business property
  
  
• Seizure of business assets or inventory
  
  
• Passport revocation for seriously delinquent tax debt

Ignoring partnership tax obligations only increases costs and risk for all the partners in the partnership.

Relief and Resolution Options 

The good news is that multiple options are available to resolve unfiled 1065 partnership returns and reduce penalties. Acting quickly demonstrates good faith, which may improve your chances of receiving penalty relief.

Step 1: Gather Necessary Information

Before filing, make sure you have everything the IRS needs to process the returns:

• IRS Transcripts: Request business tax account transcripts for each taxable year.
  
  
• Partnership Documents: These include the partnership agreement, amendments, and prior returns.
  
  
• Financial Records: These include bank statements, income records, and documentation for deductions and credits.

Having accurate data helps you file a complete return and avoid further delays.

Step 2: File Delinquent Returns

Prepare and submit Form 1065 for every tax year you missed.

• Filing Priority: File years with balances due first and refund years last.
  
  
• Amended Returns: Use Form 1065X to correct previously filed returns.
  
  
• Extension Option: Consider requesting an extension for the current year to avoid adding to the problem.

Step 3: Apply for Penalty Abatement

You may qualify for relief from some or all penalties:

• First-Time Penalty Abatement (FTA):  This is available if you have three clean filing years and meet specific criteria.
  
  
• Reasonable Cause: Show that circumstances like a natural disaster, death of a partner, or inability to obtain records prevented timely filing.
  
  
• Abatement Request: File Form 843 or call the IRS to request relief.

Step 4: Explore Payment Relief Options

If you owe tax or penalties, the IRS offers programs to make repayment manageable:
1. Installment Agreement

• Eligibility Criteria: Tax balance under $50,000 with all required returns filed.
• Key Benefits: Allows you to spread payments over a period of up to 72 months.

2. Offer in Compromise

• Eligibility Criteria: Must demonstrate an inability to pay the full balance.
• Key Benefits: Settle your tax debt for less than the full amount owed.

3. Currently Not Collectible

• Eligibility Criteria: Must show verified financial hardship.
• Key Benefits: Temporarily halts IRS collection actions while your situation is reviewed.

‍
How to Respond to the IRS 

Once you have filed your unfiled 1065 partnership returns or gathered the required information, you must formally address any IRS notices. Responding promptly can prevent additional penalties and show the IRS that your partnership is acting in good faith.

Responding to IRS Notices

• Read Carefully: Each notice lists the tax year, penalty amount, and due date.
  
  
• Request Transcripts: If you have not already done so, obtain transcripts to verify what the IRS has on file.
  
  
• Provide Necessary Information: Include missing forms, corrected returns, or supporting documentation establishing reasonable cause.

Making Abatement Requests

If you qualify for penalty relief, submit an abatement request as soon as possible:

• First-Time Penalty Abatement: If you meet the criteria, this can remove penalties for one tax year.
  
  
• Reasonable Cause: Provide a written explanation describing the circumstances that prevented timely filing, such as a natural disaster, illness, or the death of one partner.
  
  
• Supporting Evidence: Include financial statements, death certificates, or other documents that support your claim.

Timely Action Matters

Failure to respond by the date listed on the notice may cause the penalty to become final, making it more difficult to challenge later. Filing all the partners’ returns and paying any balance due quickly can minimize interest charges and stop additional penalty assessments.

Professional Help and Resources

Resolving unfiled 1065 partnership returns can be complex, especially when multiple taxable years are involved or penalties have already been assessed. Professional support can save time, reduce errors, and improve your chances of penalty relief.

When to Seek Help

Consider working with a tax professional if:

• Your partnership has several years of unfiled returns.
  
  
• IRS Substitute for Return (SFR) assessments are on your transcripts.
  
  
• Penalties are substantial, and you plan to request a reasonable cause abatement.
  
  
• Your state has separate partnership filing requirements that must also be addressed.

Business Tax Transcript Service

Before preparing delinquent returns, knowing what the IRS already has on file is critical. Our Business Tax Transcript Service (1120, 1120-S, 1065) allows you to:

• Retrieve official IRS partnership transcripts quickly and securely.
  
  
• Receive a plain-English summary of each tax year’s status, including penalties assessed and payments posted.
  
  
• Save hours compared to contacting the IRS directly.

Knowing what the IRS sees reduces the risk of duplicate filings and helps calculate the exact penalty amount before submitting your abatement request.

[Get Your Business Tax Transcript Packet]

Using professional services can help ensure accurate filings, establish reasonable cause properly, and position your partnership for the best possible outcome.

Frequently Asked Questions (FAQs) 

What is the late filing penalty for Form 1065?

The late filing penalty is calculated per month, per partner, based on the tax required for that year. Even if no income is reported, penalties can still apply. Partnerships must submit the return and Schedule K-1s for each partner in the same proportion as their ownership interest. Filing quickly helps limit penalty growth and interest charges.

Can I get penalty relief if I missed several years?

The IRS offers penalty relief through First-Time Penalty Abatement or a reasonable cause request. You must show that circumstances outside your control prevented timely filing. This may include a natural disaster, illness, or estate administration issues that delayed access to records. Partnerships, S corporations, and other entities can all request relief if they meet IRS criteria.

Does the due date change if my partnership has no income?

No, the due date is the same regardless of income or activity. A return is still required, even with zero income. Filing ensures the IRS has a record of the partnership’s status and avoids automatic penalties. Partnerships and corporations must meet this obligation to keep partners’ and persons’ joint return filings accurate.

Are estimated tax payments needed for partnerships?

Partnerships generally do not make estimated tax payments because the entity does not pay income tax. Instead, income, deductions, and credits flow through to each partner in the same proportion as their ownership share. Each partner is responsible for making estimated tax payments on their share of tax required to avoid underpayment penalties on their personal or joint return. This rule also applies to S corporations.

Do penalties ever transfer to one partner personally?

No, Form 1065 late filing penalties are assessed against the partnership as an entity, not a single individual partner. However, partners are still liable for any tax required on their personal returns and may owe interest or penalties if they failed to report partnership income. This can affect persons filing a joint return, members of an estate, or partners in other corporations with similar obligations.

Take Action Today

Unfiled 1065 partnership returns create mounting penalties, interest, and unnecessary stress for all the partners involved. The longer the failure continues, the more expensive your situation becomes. Whether you must gather IRS transcripts, file multiple delinquent returns, or request penalty relief, acting quickly can save money and protect your business.

Our team can help you retrieve your IRS records, prepare accurate partnership returns, and explore payment options that fit your budget. Taking the proper steps now may qualify you for penalty abatement and keep future tax obligations under control.

[Explore Our Business Tax Transcript Packet Offers]

Getting ahead of these issues today ensures your partnership stays compliant and avoids collection actions like bank levies or federal tax liens. Start now and give your business a clean slate for the following taxable year.