Tax Insights

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Reasonable Cause for Late Filing of Partnership Income Tax Returns

I have previously blogged about the penalties the IRS will impose on late filing Partnership income tax returns. To refresh your memory, the late filing penalty for a 2009 Partnership return is $89 for each month the return is late multiplied by the total number of partners in the Partnership. The penalty jumps to $195 per in 2010. As always, no penalty will be imposed if the Partnership can show that the late filing was due to reasonable cause.

What exactly does the IRS think is reasonable cause to file a Partnership return late? IRS Rev. Proc. 84-35 shows an example of reasonable cause. The following qualifications must be met in order for the Partnership to show reasonable cause and abate the late filing penalty.

1. The Partnership must be a domestic partnership.

2. The Partnership must have ten or fewer partners, each of whom is an individual (other than a nonresident alien) or an estate of a deceased partner.

3. Each partner’s share of each partnership item is the same as his share of every other partnership item.

4. The partnership, or any of the partners, establishes, if so requested by IRS, that all partners have fully reported their shares of the income, deductions, and credits of the partnership on their timely filed income tax return.

Does this reasonable cause excuse work? My experience in using Rev. Proc. 84-35 has been successful when the partners and the partnership meet these specific qualifications. What if your situation does not fall under these qualifications? Well, let’s just hope you have a very good legitimate reason for not filing your partnership return on time.

Steven B Schwartz, CPA


  1. David Kaiso says:

    Number three: “Each partner’s share of each partnership item is the same as his share of every other partnership item.”

    What in the name of god does that mean? Is that English?

    • admin says:


      The question you have raised on number three means that there are no special allocations in the partnership return. For example, if there are two partners and each own 50% of the partnership, the K-1 for each of the partners must be 50% of each income and deduction item. You cannot specially allocate interest income or depreciation, for example, in order for reasonable cause to be considered for potential removal of the late filing penalty.

      So it is in English, but it is tax code English, which is probably not the same thing!

      Thanks for reading the blog!

      Donna H. Laubscher, CPA

    • Hi, for number 4, does that mean that even losses should be reported on personal returns?
      In other words, if there is no income or credits and only net losses every year (our buisness has 0 revenue and has not operated for 3 years but still exists on paper) does that still have to be reported on personal returns of the members?


    • admin says:

      Hi Marc –

      Yes, all income, deductions, losses and credits are to be reported on the individual partners tax returns every year – these items should all be reported to these partners on a Form K-1, to make this easier. If the business is not currently operating and there are no items of income or loss to report, then you are fine. But you mention losses. A tax return should still be prepared for net losses and picked up by the partners.

      Thanks for reading the blog,

      Donna H. Laubscher, CPA

    • marc giordano says:

      Thank you Donna!

      that’s some confusing stuff, thanks for explaining.

      regarding the equal partnership items that the first reader asked about: if 2 of 4 partners removed themselves from the biz leaving 2, subsequent losses are at 50% instead of 25% (even though the biz doesn’t function anymore and there aren’t any incomes or losses)….would this still suffice as “equal” to the irs since 2 partners are no longer involved…make sense? in other words, the k1 only shows 2 owners now with 4 owners having been present in the past….

      sorry for the confusion