IRS Notice CP162 | What is it – and how can I respond?

May, 04 2022 by Kate Ferreira, CTEC

You received an IRS notice CP162 in the mail – now what? You are probably wondering why you received this notice, what it means, and what your options are. Do not fret – we are here to answer your questions and provide options so that you do not feel alone.

 

What is an IRS Notice CP162? Why did I receive this notice?

An IRS Notice CP162 is a letter that proposes an amount due. The amount due is a penalty because you a) filed your partnership return late, b) did not file at all when the return was required to be filed, or c) the return you filed was missing information required for certain partnerships. A penalty may also be imposed for not filing a partnership return electronically when there are more than 100 partners.
 

What do I do?

Depending on your situation, there are three ways to handle an IRS notice CP162:

1. File your return if it hasn’t been filed.
2. Respond to the notice.
3. Pay the penalty.

File your Return

If you have not filed your partnership return for the year of the notice, you should file your return immediately. The IRS will increase the penalty for filing late each month (or part of a month) until you file, or until 12 months from the due date of your return, whichever occurs first. The amount of the penalty is adjusted yearly for inflation. For 2019 returns that were required to be filed in 2020, the monthly penalty amount is $205. For 2020 and 2021 returns required to be filed in 2021 and 2022, respectively, the penalty is $210 per month and, for returns that are required to be filed in 2023, the monthly penalty amount will be $220. The total monthly penalty amount depends on the number of partners. For example, if a partnership with 150 partners failed to timely file their partnership return for five months in 2021, the monthly penalty would have been $157,500 (150 partners x $210) x 5 months = $157,500)! The penalty is steep and designed to get the return filed as soon as possible.
 

Submit a Response to IRS Notice CP162 because the Notice is Incorrect

• If you were not required to electronically file your partnership return and were charged a penalty for failure to e-file, you may be eligible to send a response to the IRS disputing the notice, if you meet the criteria below:
  • Your partnership has fewer than 101 partners, or
  • You received a waiver of the requirement to file electronically for the year in question.

You will need to be able to provide evidence of the number of partners in the partnership at any time during the year or a copy of the waiver.

Note: For the penalty in question, a Real Estate Mortgage Investment Conduit (REMIC) is treated as a partnership, and a REMIC return (Form 1066) is treated as a partnership return.
 

• If you were penalized because the IRS is alleging you filed your return late, you may be eligible to send a response to the IRS disputing the notice.

Generally, a return is considered timely filed by mail when the envelope is properly addressed, enough postage has been applied, and it is postmarked on or before the due date of the return. Electronically filed returns are considered timely when they are transmitted on or before the due date of the return, per the time zone where the transmission was sent. After the return is transmitted, the IRS sends an electronic acknowledgement verifying the return was received.

There can be many reasons why a timely filed return arrives late at the IRS. IRS records can get lost, bad weather can delay the mail, etc. If you were charged a penalty for filing your partnership return late and can prove it was filed timely, it is worth submitting a response disagreeing with the penalty. Sending returns by mail certified with return receipt provides the verification the IRS will need to reverse the penalty charge. When transmitting returns electronically, it is important to save a copy of the transmission report and the electronic acknowledgement from the IRS that the return was accepted.
 

Pay the Penalty

If you agree with the penalties, all you need to do is mail your full payment to the IRS by the date shown on your letter. Failure to respond by the due date could result in additional interest charges.

If you are unable to pay the full payment to the IRS or are curious about penalty abatement, please read on for additional information.
 

CP162 and Penalty Abatement

What if the failure to file the partnership return timely was beyond your control? What if you faithfully filed your partnership returns on time for years? Will the IRS take your stellar file history into consideration? Thankfully, there are options for taxpayers like you! One option is the IRS First-Time Penalty Abatement Policy where you can request penalty relief if there is reasonable cause. A penalty abatement is essentially asking the IRS to remove the penalty that has been assessed. The IRS will look at the facts and circumstances in your situation when making their decision on whether to approve the abatement. For a more in-depth look at penalty abatement, click here to read more.

We also have a quick, five-minute video that discusses getting your penalty waived which can be viewed below.

Tax Debt Relief

Owing a penalty to the IRS is not a situation anyone wants to be in. If you are in a place where you have business tax debt and do not know where to go or what to do, TaxAudit can help. Our Tax Debt Relief services assist individual taxpayers and businesses with navigating this difficult situation. We can also provide guidance and relief with payroll tax issues, including Trust Fund Recovery penalties. We understand that tax debt can be crushing due to the harsh penalties and interest that rapidly accrue on unpaid balances. If you are interested in getting more information, click here to learn more and request a free, no-obligation consultation to see if Tax Debt Relief services are what you and your business need.