USTaxPenaltySaverWhat a CP162A Notice Means
The IRS sends CP162A when it charges a penalty because a partnership or S corporation return was late, or because it was not filed electronically when the rules required it. The IRS CP162A page was last updated August 20, 2026.
For partnerships (Form 1065) the penalty is under IRC 6698. For S corporations (Form 1120-S) it is under IRC 6699. Both work the same way and can apply even when the business owes no tax.
The IRS uses other CP162 notice numbers for related penalties. This guide covers CP162A. If your notice has a different letter, read the explanation printed on it and check the IRS notice page for that code.
How the Penalty Is Worked Out
The penalty is a set amount multiplied by the number of partners or shareholders, for each month or part of a month the return is late, for up to 12 months. The amount is $255 per person per month for returns due in 2026 (Rev. Proc. 2024-40) and $260 for returns due in 2027 (Rev. Proc. 2025-32).
Example: a partnership with 3 partners files a return that was due in March 2026 two months late. The penalty is 3 × 2 × $255 = $1,530. The same return filed 12 or more months late would reach the cap: 3 × 12 × $255 = $9,180.
Our free partnership and S corporation penalty calculator does this math for you. Compare its estimate with the amount on your notice; if they differ a lot, check the number of owners and the months the IRS counted.
First, Check the IRS's Facts
Check the filing date. If the business filed Form 7004 for an extension, the return was due on the extended date. Have proof of when the return was filed, such as the e-file acceptance or a postmark record.
Check the number of partners or shareholders the IRS used. The penalty is multiplied by that number, so an error there changes the whole amount.
If the return was filed on time, the IRS CP162A page says you can call the number listed on the page, and it lists some other situations where a call is the right step. Otherwise, answer in writing as described below.
Automatic Relief and First-Time Abatement
The IRS's automatic penalty relief (AEP, IR-2026-83) covers Forms 1065 and 1120-S and the late-filing penalties under IRC 6698 and 6699. It replaces First-Time Abatement for eligible returns with an original due date on or after January 1, 2027, such as a calendar-year 2026 Form 1065 due March 15, 2027. Look for TC 971 AC 996 on the business account transcript, or a CP195B notice.
For earlier returns, First-Time Abatement is still the main relief. The IRS administrative waiver page lists the partnership and S corporation late-filing penalties among those it covers. In general the business needs no penalties in the 3 prior years and all required returns filed. For tax year 2025 returns in the AEP transition, check the account first; if the penalty is still charged, ask for First-Time Abatement.
You can ask by phone, by letter or on Form 843. Our free First-Time Abatement letter template gives you a ready structure. See the automatic penalty relief guide for the full AEP rules.
Small Partnerships: Rev. Proc. 84-35
Rev. Proc. 84-35 gives relief to small partnerships with 10 or fewer partners. The IRS CP162A page lists the conditions: each partner was a natural person or an estate, each partner's share of each partnership item was the same, and all partners reported their share of partnership items on their own timely filed income tax returns. The page lists one more condition about audit procedures.
If the partnership meets every condition, send a statement saying so, signed under penalty of perjury, as the IRS page describes. Keep copies of the partners' timely filed returns in case the IRS asks for them.
This relief is for partnerships only. An S corporation cannot use Rev. Proc. 84-35; it can ask for automatic relief, First-Time Abatement or reasonable cause.
Reasonable Cause
If the business does not qualify for automatic relief or First-Time Abatement, it can ask for relief for reasonable cause. The IRS CP162A page says you can mail a written explanation asking for the penalty to be removed.
Explain what happened, when, why it stopped the business from filing on time despite ordinary business care, and when the return was filed once the problem ended. Examples can include a serious illness of the person responsible, a disaster, or records the business could not get. Attach records that back up the dates.
Our free reasonable cause letter template helps you write this. Send it to the address on your notice and keep a copy.
Paying and Avoiding the Penalty Next Year
If you agree with the penalty, the IRS page says to pay the full amount by the date on the notice to avoid more interest. If a relief request is pending, you can still pay to stop interest; if the IRS removes the penalty, it refunds or credits the payment.
If the business cannot pay in full, look at IRS payment plans before the balance grows. Our free payment options calculator compares them.
To avoid the penalty next year, put the return due date on the calendar, file Form 7004 for an extension if the return will not be ready, and keep proof of filing. An extension gives more time to file, not to skip filing.
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Sources
- www.irs.gov/individuals/understanding-your-cp162a-notice
- www.irs.gov/payments/penalty-relief-due-to-first-time-abate-or-other-administrative-waiver
- www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers
- www.irs.gov/payments/administrative-penalty-relief
- www.law.cornell.edu/uscode/text/26/6698
- www.law.cornell.edu/uscode/text/26/6699
Last reviewed: November 11, 2026. Check irs.gov for changes.