How to limit penalties when Schedule K-1s are issued late

Whether the Sept. 15 deadline to furnish Schedule K-1s to partners or shareholders is coming up fast or has already passed, you’re not alone. Penalty exposure adds up quickly, but there are still ways to reduce the damage. Here’s a refresher on the penalties, the relief options and the steps to take when Schedule K-1s go out late.

Penalties add up fast, from multiple angles

Several distinct penalties can apply when Schedule K-1s aren’t furnished on time:

Failure to file partnership or S corporation returns (§§6698 and 6699)

• $255 per partner or shareholder, per month (or part of a month), for 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 (§6722)

• $340 per late or incorrect K-1 for statements due in 2026, reduced to $60 if furnished or corrected within 30 days, or $130 if furnished or corrected by Aug. 1 of the following year.
• Small filers (average annual gross receipts of $5 million or less) face a lower calendar-year maximum than large filers; these caps and rates are adjusted for inflation each year.

Failure to file correct information returns (§6721)

• Another $340 per K-1 for not filing with the IRS on time, with the same reduced rates and caps as §6722.

Intentional disregard (§§6721 and 6722)

• If the IRS decides the failure was intentional, the penalty jumps to $680 per K-1, or 10% of the reportable amount, with no maximum.

Only the penalty corresponding to the entity type applies under §6698 or §6699. That penalty can still stack with the §6721 and §6722 penalties for the late K-1s themselves.

Act immediately; every week counts

The longer a return sits unfiled, the higher the tab. File the entity return and furnish all K-1s as soon as possible. Penalties accrue monthly, even for partial months, meaning a one-week delay still counts as a full month.

Partial relief if you act within 30 days

Entities that furnish late K-1s within 30 days of the deadline qualify for reduced penalties under §6722:

• $60 per K-1 if furnished within 30 days.
• $130 per K-1 if furnished after 30 days but by Aug. 1 of the following year.

The annual penalty caps still offer a layer of protection if either threshold applies.

First-time abatement and reasonable cause relief

A client may avoid penalties if they qualify for one of these options:

• First-time abatement may be available if the entity hasn’t been penalized in the prior three years and is current on all other filing and payment obligations.
• Reasonable cause relief applies when late filing or furnishing was due to circumstances beyond the taxpayer’s control, such as a natural disaster, 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. Encourage clients to save records that support their case, such as emails, event timelines, medical documentation or correspondence with third parties. Relief isn’t automatic; it must be requested in writing, and the IRS decides eligibility based on the facts.

Watch for administrative relief too

The IRS occasionally issues notices granting blanket penalty relief for specific situations, such as a disaster declaration or a new reporting requirement. Always check for current IRS guidance that may apply to the tax year in question before assuming a client owes the full penalty. For the latest figures and guidance, see the IRS Information return penalties page.

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 the client qualifies under first-time abatement or reasonable cause.
4. Monitor IRS notices for any relief that may apply.
5. Document everything. The earlier you build your defense, the better your chances of success.

Build better systems for next year

Preventing late K-1s starts with firm-level readiness. Set earlier internal deadlines, use tracking checklists and follow up with clients for missing data well before the deadline. Consider building a K-1 checkpoint into your workflow in early August to flag potential delays before they become penalty risks.