Missed the Sept. 15 deadline to furnish Schedule K-1s to partners or shareholders? You’re likely facing penalties, but there are still ways to reduce the impact. Read ahead to learn the consequences, relief opportunities and next steps to take when Schedule K-1s are late.

Penalties add up quickly, from multiple angles

Several distinct penalties can apply when Schedule K-1s are not furnished on time:

• Failure to file partnership or S corporation returns (IRC §§6698, 6699):

  $255 per partner/shareholder, per month (or part of a month), up to 12 months. This applies if the entity return is late or incomplete, which includes missing K-1s.

  Example: A partnership with four partners that files two months late may owe 4 × $255 × 2 = $2,040 in penalties.

• Failure to furnish correct payee statements (IRC §6722):

  $310 per late or incorrect K-1. Reduced to $60 if corrected within 30 days, or $120 if corrected by Aug. 1 of the following year.

  Note*: Small filers (gross receipts ≤$5 million) are subject to a cap of $1,261,000; large filers are capped at $3,783,000.

• Failure to file correct information returns (IRC §6721):

  Another $310 per K-1 for not filing with the IRS on time; similar caps and reductions apply.

• Intentional disregard (IRC §§6721, 6722):

  If the IRS deems the failure was intentional, the penalty jumps to $630 per K-1, or 10% of the reportable amount, with no maximum.

In short, if a partnership or S corporation fails to furnish K-1s and fails to file correct information returns, the penalties can be stacked. However, only one penalty applies under §6698 or §6699, not both, even if the return is both late and incomplete.

The most critical step: act immediately

The longer you wait, the higher the penalty. Filing the entity return and furnishing all K-1s as soon as possible is essential. Penalties accrue monthly, even for partial months, so a one-week delay still counts as a whole month.

Partial relief is available if you act within 30 days

Entities that furnish the K-1s within 30 days of the deadline can benefit from reduced penalties under IRC §6722:

• $60 per K-1 if corrected within 30 days
• $120 per K-1 if corrected after 30 days but before Aug. 1 of the following year

If these thresholds apply, the annual penalty caps (e.g., $175,000 for small filers) still offer a layer of protection.

Penalty relief options: first-time abatement and reasonable cause

You may be able to avoid penalties if your client qualifies for:

• First-time abatement: This option is available if the entity has not been penalized in the prior three years and is current on all other filing and payment obligations.
• Reasonable cause relief: This relief applies when late filing or furnishing was due to circumstances beyond the taxpayer’s control, such as natural disasters, illness, death, or the inability to obtain necessary information.

In most cases, the IRS requires a written statement and supporting documentation after it assesses a penalty. Taxpayers must respond to the notice, following the instructions provided. If you’re requesting relief proactively (for example, attaching a reasonable cause statement with a late-filed return), that statement should be included with the return.

Encourage clients to save records that support their case, such as emails, event timelines, medical documentation or correspondence with third parties.

Penalty relief isn’t automatic. It must be requested in writing, and the IRS decides eligibility based on the facts and supporting evidence.

Special administrative relief may apply in unique years

Occasionally, the IRS issues notices granting blanket penalty relief for specific scenarios. For example, Notice 2019-20 provided penalty relief for missing tax basis capital account information on 2018 returns. Always check for any IRS administrative guidance applicable to the tax year in question.

Quick recap: if you miss the K-1 deadline

1. File and furnish all outstanding returns and K-1s as soon as possible.
2. Review penalty amounts under §6698, §6699, §6721 and §6722 to understand your client’s exposure.
3. Request abatement if you qualify under first-time abatement or reasonable cause.
4. Monitor IRS notices for any year-specific relief that may apply.
5. Document everything; the earlier you prepare your defense, the better your chances of success.

Avoid future issues with better systems

Preventing late K-1s starts with firm-level readiness. Set earlier internal deadlines, use tracking checklists and follow up aggressively with clients for needed data. Consider building in a “K-1 checkpoint” in early August to flag potential delays before they become penalty risks.

Join NATP to access exclusive resources that help you stay ahead (even when deadlines sneak up).