Late Form 1120-S: The Per-Shareholder Penalty and Relief
How the late-filing penalty for S corporation returns is calculated, why it applies even with no tax due, and the routes to having it removed.
Reviewed by the Fairlight Accounting cross-border tax team — U.S. & Canadian Tax Desks
An S corporation that files Form 1120-S late owes a penalty for each month the return is late, up to 12 months, multiplied by the number of shareholders at any time during the year. The penalty applies even though an S corporation usually owes no income tax. First-time abatement or reasonable cause can often remove it.
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How is the penalty calculated?
The penalty is a fixed, inflation-adjusted dollar amount per shareholder per month or part of a month, for up to 12 months: $255 for returns required to be filed in 2026 (Revenue Procedure 2024-40), rising to $260 for returns required to be filed in 2027 (Revenue Procedure 2025-32). A two-shareholder company that files its 2025 return five months late pays $255 times two times five, or $2,550. Separate penalties apply for furnishing Schedules K-1 to shareholders late — $340 per Schedule K-1 for 2025 returns.
| Filing | Due date (calendar year) | Extended due date |
|---|---|---|
| Form 1120-S | March 15 | September 15 (Form 7004) |
| Schedules K-1 to shareholders | Same as the return | Same as the extended return |
| Form 7004 extension | By March 15 | — |
A due date that falls on a weekend or legal holiday moves to the next business day — 2025 calendar-year returns were due March 16, 2026. The extension covers filing only. Any built-in gains or other entity-level federal tax due must still be paid by the original date; state extensions and payment deadlines follow each state's own rules.
How do you get the penalty removed?
- First-time abatement. Available if the corporation had no penalties in the prior three years and filed all required returns. It is an administrative waiver — no explanation of the cause is needed. Request it by phone, in writing, or on Form 843. The IRS's new automatic version, starting in summer 2026 with 2025 returns, lists Forms 1040, 1065, and 1120 but not Form 1120-S, so an S corporation should still ask.
- Reasonable cause. Fire or natural disaster, death or serious illness, inability to obtain records, or system issues that delayed a timely e-filing. Relying on a tax professional, not knowing the deadline, or a simple oversight generally does not qualify.
- Partnership small-company relief does not apply. The relief for partnerships with 10 or fewer partners under Revenue Procedure 84-35 covers only the partnership late-filing penalty under Section 6698 and is not available to S corporations.
What should you do if a return is already late?
File immediately — every month adds to the penalty, and the cap is reached at 12 months. When the penalty notice arrives, request first-time abatement if eligible. If the company also missed a year earlier, prepare a reasonable-cause statement with documentation.
Does a late return affect the S election?
No. Filing late does not terminate the election. Separately, a company that has been filing Form 1120-S without a valid election on file — for example, because Form 2553 was never filed or was filed late — needs late-election relief under Revenue Procedure 2013-30 rather than penalty relief.
Frequently asked questions
Does the penalty apply if the company had a loss?
Yes. The penalty is based on shareholders and months late, not on income.
Can the IRS assess it years later?
There is no time limit to assess a penalty on a return that was never filed. Filing starts the clock.
Does first-time abatement use up my chance?
It covers one tax period. If you have penalties for several years, request it for the earliest year and use reasonable cause for the others where you can.
Do states charge a similar penalty?
Many do, on their own schedules. Relief must be requested from each state.
Official sources
The IRS explains: “A penalty may be assessed if the return is filed after the due date (including extensions) or the return doesn’t show all the information required, unless each failure is due to reasonable cause.” — Internal Revenue Service, Instructions for Form 1120-S (2025), https://www.irs.gov/instructions/i1120s
The IRS explains: “The most common administrative penalty waiver provided by the IRS, First Time Abate (FTA), applies to taxpayers with three years of timely compliance history.” — Internal Revenue Service, Administrative penalty relief, https://www.irs.gov/payments/administrative-penalty-relief
Next step
Fairlight Accounting handles U.S. domestic, cross-border (U.S.–Canada), and international tax returns, plus bookkeeping, payroll, and CFO advisory. Our U.S. Tax Desk files overdue S corporation returns and requests penalty relief in the same package. See pricing or book a free fit call.
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