CP162B: What It Means and How to Respond

What the notice actually says

CP162B tells the entity: "We charged you a penalty because: your partnership or S corporation return was incomplete or, you didn't file your return electronically, as required." Unlike CP162 (paper-filing only, partnerships only) and CP162A (late filing, either entity), CP162B is the notice for an incomplete return, an e-filing failure, or both, and it reaches both partnerships and S corporations. For this penalty, a Real Estate Mortgage Investment Conduit (REMIC) is treated as a partnership and its Form 1066 as a partnership return, the same convention CP162 uses.

The incomplete-return penalty is $255 for each partner or shareholder the entity had during the year, for each month or part of a month the missing information stays missing, capped at 12 months — the same rate structure Rev. Proc. 2024-40 sets for CP162A's late-filing charge, for returns due in 2026. (The IRS's own CP162B page still states the prior year's $245 figure in its FAQ as of this writing; the return-year rate governs, not the notice-page copy date.) The paper-filing penalty follows CP162's own separate, lower-rate schedule instead — see that page for the figures.

What actually triggered it

For the incomplete-return charge: Form 1065 requires the penalty under IRC §6698(a)(2); Form 1120-S requires it under IRC §6699(a)(2) — both reach both entity types identically. It posts on the transcript as a TC 246 or TC 240 with penalty reference number 723 for assessments after January 1, 2022 (before that date, the same TC codes carry no three-digit reference number).

For the e-filing-failure charge, entity type matters in a way the notice's own wording does not signal. A partnership's failure to e-file is deemed a §6721 information-return violation by Treas. Reg. §301.6011-3(c) — the exact rule CP162 already documents (>100 partners, or 10-or-more aggregate returns of any kind in the year). An S corporation's failure to e-file is deemed an ordinary failure to file the return at all, under the parallel regulation, Treas. Reg. §301.6037-2(c) — a materially different rule with a materially different relief path, covered next.

Why the e-filing charge splits by entity type — and why it matters

Treas. Reg. §301.6011-3(c) states that a partnership that fails to e-file when required "will be deemed to have failed to file the return in the manner prescribed for purposes of the information return penalty under section 6721" — routing the charge into the §6721 regime, where First-Time Abate and the new Automatic Exemption from Penalty (AEP) program both do not apply, and reasonable cause is judged under the stricter §6724 standard.

Treas. Reg. §301.6037-2(c), the S corporation counterpart, says something different: an S corporation that fails to e-file "is deemed to have failed to file the return" — full stop, with the regulation's own text pointing to §6651 (the ordinary failure-to-file penalty) rather than §6721. Reasonable cause for that failure is evaluated under §301.6651-1(c), using rules "similar to" the undue-hardship test in §301.6724-1(c)(3) — a cross-reference for the standard, not a re-routing into §6724 itself. Practically, this means an S corporation's e-filing failure is charged and relieved like an ordinary IRC §6699(a)(1) late-filing penalty — the same penalty First-Time Abate and AEP already reach — while the identical-sounding failure on a partnership return sits in a different regime with neither available. Confirm which regulation actually governs your entity before assuming either relief path applies or doesn't. The rule worth remembering: a partnership's e-filing failure is judged like a missing information return; an S corporation's e-filing failure is judged like a missed deadline.

What First-Time Abate and AEP actually reach on this notice

First-Time Abate expressly excludes the incomplete-return penalty. IRM 20.1.1.3.3.2.1, paragraph (6)(d) — verified against the live IRM text — states: "The penalty is charged for an incomplete Form 1120-S under IRC 6699(a)(2) or Form 1065 under IRC 6698(a)(2)," listed among the reasons "FTA criteria will not be met." The same paragraph confirms the one piece of real good news on this notice: "Taxpayers that file an incomplete Form 1120-S or Form 1065 are provided an opportunity to submit the missing information before the incomplete return penalty is assessed" — get the missing information in before assessment, and there may be no penalty to fight in the first place.

Automatic Exemption from Penalty (AEP), the program phasing out First-Time Abate for returns due on or after January 1, 2027, doesn't reach the incomplete-return penalty or a partnership's e-filing failure either — IRM Procedural Update SBSE-20-0626-0643, ¶5, lists only Failure to File under §§6651(a)(1)/6698(a)(1)/6699(a)(1), Failure to Pay under §6651(a)(2)/(3), and Failure to Deposit under §6656 as the penalties AEP prevents. Neither §6698(a)(2)/§6699(a)(2) (incomplete return) nor §6721 (partnership e-filing failure) appears on that list. An S corporation's e-filing failure, deemed a §6699(a)(1) failure by the regulation above, is the one component of this notice AEP and FTA can both reach.

What CP162B gets confused with — and why the distinction matters

The most consequential mix-up is assuming CP162B means the return was late. It doesn't — CP162B charges an incomplete return, an e-filing failure, or both, never lateness. A late-filing charge belongs to CP162A instead, and the two notices carry entirely different relief rules: CP162A's late-filing charge is First-Time-Abate-eligible; CP162B's incomplete-return charge is expressly excluded.

The second trap is assuming this notice's scope matches its closest sibling. CP162B and CP162C share two charge types (incomplete return, e-filing failure) but not a third and fourth: only CP162C can also carry a late-filing charge or a missing-tracking-report charge. A CP162B recipient with a late-filing problem on the same return will see that charge on a different notice, not folded into this one.

What to do — read the billing summary line by line first

This notice's billing summary breaks out each charge separately, and the right response depends on which line is actually on your account — not on the CP number alone. For a correctly charged incomplete return, submit the missing information as soon as possible; the penalty keeps accruing until the IRS receives it, up to the 12-month cap. If you believe there was reasonable cause for the missing information, send a signed written explanation along with it to the IRS office where you filed the return.

For an e-filing charge you believe was wrongly assessed against a partnership, the IRS's own instructions on this notice say to call with proof the partnership had 100 or fewer partners during the year, or a copy of an approved waiver. For a partnership that never sought a waiver and cannot show one of those two conditions, the request goes to Ogden as a written "Form 1065 e-File Waiver Request" — no separate form number, a written submission is the mechanism itself — per the IRS's own guidance on waivers for partnerships unable to meet e-file requirements, current as of this writing.

If the partnership has 10 or fewer partners, all individuals (or a deceased partner's estate) who reported their shares on time, Rev. Proc. 84-35 can still reach both the late-filing portion and the incomplete-return portion of a penalty on this family of notices — the IRS's own CP162B page states this directly. It does not reach the e-filing-failure charge, and it does not extend to S corporations under any circumstance. CP162C covers the small-partnership and waiver situations in more depth.

Common Questions