What a CP162 is
A CP162 is a penalty notice sent to a partnership, a REMIC or an S corporation, and which penalty it charges depends on the suffix. The IRS's internal manual sets the series out:
"There are five notices in the CP 162 series: CP 162, Late or Incomplete Return Penalty - Partnership or S - Corporation; CP 162A, Failure to File Form 1065, 1066 or 1120S; CP 162B, Failure to File Penalty/Missing Information Penalty; CP 162C, Failure to File Penalty/Missing Information Penalty - Adjustment (Balance Due / Refund); CP 162E, Failure to File Penalty/Missing Information penalty - Adjustment (Even Balance)." — Internal Revenue Manual 21.3.1.7.20 (1 October 2025)
The split happened in January 2022, and it is the reason the internet disagrees with itself about this notice. (Note one thing about the list just quoted, because we would rather you noticed it here than later: it still labels the bare CP162 "Late or Incomplete Return Penalty." The taxpayer-facing pages for CP162 and CP162A, quoted below, are unambiguous the other way, and they are what the IRS tells the public today. Where a manual heading and a taxpayer page disagree, we are following the taxpayer page and saying so.) A different part of the manual sets out the change:
"Prior to January 1, 2022, CP 162 was a balance due notice used to notify taxpayers of penalties assessed on Form 1065 (MFT 06) and Form 1120-S (MFT 02). This notice was issued when Form 1065 or Form 1120-S was assessed a penalty for failure to file by the return due date (including extensions), for failure to include required information on a return, or (for Form 1065) for failure to file electronically when required. ... After December 31, 2021, the CP 162 was revised and will inform Partnerships with more than 100 partners that they are being assessed a penalty for failure to file electronically. ... In January 2022, CP 162A was created to inform a partnership, Real Estate Mortgage Investment Conduit or S corporation that a penalty has been assessed for failure to timely file Form 1065, 1066 or 1120-S." — Internal Revenue Manual 3.14.2.6.10 (5 February 2024)
And here is a thing worth knowing about your own research, because it will save you an argument. The sample CP162 the IRS publishes at its own specimen address is the pre-2022 version. It carries a notice date of October 2011 and charges both penalties at once. That sample is why so much current writing describes a CP162 as a late-filing notice — the writers looked at the letter the IRS publishes rather than at the one the IRS now sends.
Sources: IRS, "Understanding your CP162 notice"; IRS, "Understanding Your CP162A Notice"; IRM 21.3.1.7.20 and IRM 3.14.2.6.10 — all read 6 September 2026.
Which one you are holding
Find the suffix, then read one row.
| Code | What the IRS says it charges | The relief route that matters |
|---|---|---|
| CP162 | "We charged you a penalty because you didn't file it your return electronically, as required." (the "it" is the IRS's typo, not ours) | The e-filing waiver, or the partner-count ground below |
| CP162A | "We charged you a penalty because: your partnership or S corporation return was late or, you didn't file your return electronically, as required." | Rev. Proc. 84-35, for a partnership of ten or fewer partners |
| CP162B | Missing or incomplete information on a Form 1065 or 1120-S | Supply what is missing; reasonable cause on the rest |
| CP162C | An adjustment to one of the above, leaving a balance due or a refund | Depends on the underlying penalty |
| CP162E | An adjustment to one of the above, leaving an even balance | Usually nothing to do |
If your notice charges more than one penalty, it is doing more than one thing and each one gets answered separately. A single abatement letter that treats them as one charge is how a request gets partly denied and nobody can tell which part.
Your clock
No appeal right expires on a CP162, and that is the honest answer to the question people arrive with. One thing does have a limit, and it is the route you take if you pay first. There is a payment date printed on the notice — the IRS's instruction is to pay by it "to avoid additional interest charges" — and interest is what accrues if you do not.
But a penalty already paid is recovered by a refund claim, and a refund claim runs out. Section 6511(a) allows it within three years of filing the return or two years of paying the tax, whichever is later, and penalties are collected as taxes for this purpose. So "there is no rush" is true while the penalty is unpaid and false once it is paid.
What that means practically: you have time to work out which penalty you have and whether relief applies, and doing that before you pay is better than doing it after. Abatement of an assessed penalty is a refund request; abatement of an unpaid one is a correction. The second is a shorter road.
Work from the date printed on your notice. The IRS publishes no period for this one, so the date on the letter is the operative one — and because nothing expires, you have room to establish which penalty you actually have before you pay it.
The electronic filing rule, which is wider than you think
A partnership must file electronically if either of two tests is met, and the second one catches small businesses that have never heard of it. The regulation:
"a partnership required to file a partnership return pursuant to § 1.6031(a)-1 of this chapter, must file the information required by the applicable forms and schedules electronically, if (i) the partnership is required by the Internal Revenue Code or regulations to file at least 10 returns (as described in paragraph (d)(5) of this section) during the calendar year ending with or within the taxable year of the partnership, or (ii) the partnership has more than 100 partners during the partnership's taxable year." — 26 CFR § 301.6011-3(a)(1)
The ten returns are returns of any type. The regulation counts "income tax returns, employment tax returns, excise tax returns, and information returns (for example, Forms W-2 and Forms 1099, but not including schedules required to be included with a partnership return)." A five-partner operation with six employees is over the line on W-2s alone — which means it must e-file, and it does not mean it can be charged this penalty.
🔴 The two things this section is about are different, and conflating them is the most common error in published guidance
The requirement to e-file and the penalty for not doing so do not have the same threshold. The requirement is the regulation above: ten returns of any type, or more than 100 partners. The penalty is computed per partner above 100. The IRS's manual: "The penalty is assessed for each partner over the 100 partner threshold" (IRM 20.1.2.5), and the processing manual is more explicit still — "a penalty will be assessed for each schedule K-1 over 100", with an instruction to remove it where "the taxpayer does not owe the failure to file electronically penalty (fewer than 100 partners)" (IRM 3.14.2.6.10.1).
So a five-partner partnership that filed on paper broke a rule and has an e-filing penalty of nothing. If you have fewer than 101 partners and a bare CP162 charging an electronic-filing penalty, that is the first thing to raise, and it is arithmetic rather than an argument.
Both rules apply to returns required to be filed during calendar years beginning after 31 December 2023. An S corporation is covered by the ten-return test only — there is no shareholder-count analogue.
Which is why the IRS's own dispute instruction reads the way it does. It is not a narrower concession — it is the penalty's arithmetic, stated as a ground for calling:
"We charged a penalty against the partnership for failure to file electronically and it has fewer than 101 partners or it received a waiver of the requirement to file electronically for the year in question. Be prepared to provide a copy of the waiver or evidence of the number of partners in the partnership at any time during the year." — IRS, "Understanding your CP162 notice," read 6 September 2026
Have the partner count ready, for every day of the year in question — the regulation counts a partner who held an interest at any point, not only on a particular date. And note that a Real Estate Mortgage Investment Conduit is treated as a partnership for this penalty, and a Form 1066 as a partnership return.
There is a waiver of the requirement, and separately a reasonable-cause relief from the penalty. They are not the same thing and the second one is the one most people can use.
A waiver is applied for in writing and excuses the filing requirement itself; the regulation also carves out a religious-belief exemption, and provides that where the IRS's own systems do not support electronic filing a taxpayer is not required to e-file. If you already hold a waiver for the year, that is the shortest conversation in this area.
Relief from the penalty runs through IRC 6724(a) reasonable cause, and the IRS's manual names two grounds that fit a great many small partnerships: being a first-time filer, and having a history of complying with the e-file requirement. The IRS's own CP162 page adds the general route: "you can submit a written explanation and ask for a waiver of the penalty for reasonable cause." That is a letter, and neither ground requires you to argue about the partner count.
Rev. Proc. 84-35, and why most guidance says it is dead
If your partnership had ten or fewer partners, there is a presumption of reasonable cause for a late or incomplete return — and it survived the change that most published guidance says killed it.
The Bipartisan Budget Act of 2015 repealed the small-partnership provision that Rev. Proc. 84-35 cross-refers to, and for taxable years beginning after 2017 that provision no longer exists. A lot of writing concluded the relief went with it. The IRS Office of Chief Counsel was asked directly and answered:
"Revenue Procedure 84-35 is not obsolete and continues to apply. The reference to section 6231(a)(1)(B) contained in the revenue procedure is a means by which to define small partnerships for the purpose of the relief provided by the revenue procedure. The repeal of the small partnership exception in section 6231(a)(1)(B) does not affect the scope of the penalty under section 6698 for failure to file a partnership return." — PMTA 2020-01 (POSTN-120753-19), 19 November 2019
The conditions, as the IRS itself states them on its CP162A page:
"Reasonable cause for failure to file a timely and complete partnership return will be presumed if the partnership (or any of its partners) is able to show that all of the following conditions have been met:
- The partnership had no more than 10 partners for the taxable year. (A husband and wife filing a joint return count as one partner.)
- Each partner during the tax year was a natural person (other than a non-resident alien), or the estate of a natural person.
- Each partner's proportionate share of any partnership item is the same as his proportionate share of any other partnership item.
- The partnership did not elect to be subject to the rules for consolidated audit proceedings under Internal Revenue Code (IRC) Section 6221 through 6234.
- All partners reported their distributive share of partnership items on their timely filed income tax returns.
Three limits, and they are the reason this section does not end here.
First, PMTA 2020-01 says on its own face: "This advice may not be used or cited as precedent." It is the IRS's stated internal position, which is exactly what you need when you are asking the IRS for abatement. It is not authority binding a court. Those are different things and only the first one is usually relevant.
Second, it is not automatic and it is not an exemption from filing. The manual is blunt: "an exemption from the unified audit procedures is not an exemption from the requirement to file a timely and complete partnership return." The relief is reasonable cause presumed, and the presumption is claimed, not applied.
Third — and this is the condition that fails most often — the fifth one is about the partners' returns, not the partnership's. If one partner filed late, or did not report their share, the presumption is gone for everyone. The IRS reserves the right to check, and it says what happens if the statement turns out to be wrong: "The penalty can be reasserted ... Additionally, a penalty for making false statements may be asserted under IRC Section 7206."
What the penalty actually costs
We are not printing a figure here, and it is not caution. The per-partner, per-month rate under section 6698 and the per-partner amount behind the electronic-filing penalty are both adjusted for inflation annually by revenue procedure, and the only amount printed on any published sample of this notice is from a 2011 letter. Reproducing a fifteen-year-old adjusted number as though it were current is worse than saying nothing, because a wrong number gets planned around — and this page will not do it in the course of explaining why nobody should.
(For the record and for our own refresh queue: the current-year amounts are tabled in the Internal Revenue Manual at 20.1.2 and 3.14.2. They are not reproduced here until they are in our own ledger with a source and a date, which is the same standard every other number on this site is held to.)
What you can rely on is the shape. The late-filing charge under section 6698 is per partner, per month or part month, capped at a number of months — so a five-partner return two months late is ten multiples of a figure, and a return that sat for a year is not twice as expensive as one that sat for six months, it is capped. The electronic-filing charge is per partner above the threshold, so it scales with the size of the partnership rather than with lateness.
The multiplier is printed on your notice. Read it off the letter, not off a website.
Download: The IRS Notice Timeline
One page showing where a business penalty notice sits in the sequence and what an unpaid penalty balance turns into. First name and email address. Two of the figures behind this notice are inflation-adjusted every year, which is exactly why they are not printed on this page — and the list is the mechanism for sending you the version that is current.
