CP162C: What It Means and How to Respond

What the notice actually says

CP162C tells the entity: "We charged you a penalty because: your partnership or S corporation return was either late or incomplete, you didn't file your partnership tracking report, or you didn't file your return electronically, as required." That is four distinct possible charges in one notice — more than CP162B (incomplete return or e-filing failure only) and more than CP162A (late filing or e-filing failure). As with the rest of this notice family, a Real Estate Mortgage Investment Conduit files Form 1066 and is treated as a partnership for this penalty.

The late-filing and incomplete-return charges are $255 per partner or shareholder, per month or part of a month, capped at 12 months, for returns due in 2026 (Rev. Proc. 2024-40; IRC §6698(a) and §6699(a)) — the same rate CP162A and CP162B use. The IRS's own CP162C FAQ already reflects the $255 figure rather than a prior year's rate.

What actually triggered it

Late filing is charged under IRC §6698(a)(1) for a partnership or IRC §6699(a)(1) for an S corporation. An incomplete return is charged under §6698(a)(2) or §6699(a)(2) — penalty reference number 723 on the transcript. The missing-tracking-report charge is a separate item under §6698, tracked as penalty reference number 724. The tracking report is Form 8985. A pass-through partner (a partnership, S corporation, trust or estate that holds an interest in an audited partnership) owes the §6698 penalty when it files the form late or does not file it (IRM 20.1.2.3.12.2.1). Rev. Proc. 84-35 does not reach this charge; reasonable cause can.

An e-filing failure splits by entity type exactly as it does on the rest of this notice family: a partnership's failure is deemed an information-return violation under Treas. Reg. §301.6011-3(c) — routed to §6721, no First-Time Abate, the stricter §6724 reasonable-cause standard. An S corporation's failure is deemed a failure to file under the parallel Treas. Reg. §301.6037-2(c), which points to §6651; the IRS has not said whether First-Time Abate or AEP reaches it. The rule worth remembering: the regulations treat a partnership's e-filing failure like a missing information return and an S corporation's like a missed deadline.

What First-Time Abate, AEP, and Rev. Proc. 84-35 each actually reach

Late filing (§6698(a)(1)/§6699(a)(1)) is on First-Time Abate's eligible list by name (IRM 20.1.1.3.3.2.1, paragraph (1)(a)) and on Automatic Exemption from Penalty's eligible list too (IRM Procedural Update SBSE-20-0626-0643, ¶5). Neither program covers an incomplete return — First-Time Abate by explicit carve-out at paragraph (6)(d) of that same IRM section, AEP by simple absence from its ¶5 list, which names only Failure to File, Failure to Pay, and Failure to Deposit. The tracking-report charge appears on neither eligible list under any section 6698 heading. A partnership's e-filing failure is excluded from both for the same reason CP162 documents; for an S corporation's e-filing failure, the regulation deems it a failure to file, and the IRS has not said whether either program reaches it.

Revenue Procedure 84-35 sits apart from all of that: it is a presumption of reasonable cause, not an administrative waiver. It applies only if the partnership had 10 or fewer partners (a husband and wife filing a joint return count as one partner), each a natural person (not a nonresident alien) or the estate of a natural person, each holding the same share of every partnership item, did not elect to be subject to the consolidated audit proceedings rules under IRC §§6221 through 6234 (the IRS's own wording, which dates from the earlier unified audit rules), and every partner reported their share on a timely-filed return. Met, and it presumptively removes both the late-filing and the incomplete-return charge — the IRS's own CP162C page states both are covered. It has never applied to a straight e-filing-failure charge, and it has never extended to S corporations; both limits come from the notice's own text, not just from an outside source. The IRS's own CP162C page still presents it as live, current relief — its FAQ section carries a January 29, 2026 addition date — but reconfirm before relying on it, since this is exactly the kind of older authority a later revenue procedure could narrow without much notice.

What people mistake CP162C for

The most consequential mix-up is assuming CP162C is narrowly about small-partnership e-filing relief. It carries that dispute ground — the notice's own text invites a partnership with 100 or fewer partners, or one holding an approved waiver, to call and contest an e-filing charge — but that is one of four things this notice can charge, not its defining feature. The genuine distinction from CP162B is that CP162C, and not CP162B, can also carry a late-filing charge and a missing-tracking-report charge; both notices can carry an incomplete-return charge or an e-filing-failure charge identically. Reading the billing summary, not the notice number, is what actually tells a reader which charge — or combination — applies.

The second trap repeats CP162A's own: Rev. Proc. 84-35 relief is easy to assume covers any small partnership's penalty on this notice. It reaches late filing and an incomplete return. It does not reach an e-filing failure, and an S corporation cannot use it under any of the four charges this notice can carry.

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

Each of the four possible charges on this notice has its own fix, so identify which one (or which combination) is actually assessed before responding to any of them. For a late-filing charge on a return the entity filed on time, the IRS's own instructions say an authorized officer or partner can call 800-829-0922 and should be prepared to fax documentary evidence of a timely extension or timely mailing. If the charge is correct but the entity had reasonable cause for filing late, mail a written explanation requesting abatement to the IRS office where it filed the return. For an incomplete-return charge, if you believe the missing information wasn't required, an authorized officer or partner can call 800-829-0922 and explain why; if it was required, submit it as soon as possible — the penalty keeps accruing until the IRS receives it — and attach a reasonable-cause explanation signed under penalty of perjury if one applies.

For an e-filing charge against a partnership, call with proof of 100-or-fewer partners or an approved waiver if either applies. If neither applies but the partnership qualified for a waiver it did not obtain, write to Accounts Management at the Ogden campus (IRM 21.7.4.4.2.8.1.1); otherwise the remedy after the IRS charges the penalty is a written reasonable-cause request under IRC §6724 (IRM 20.1.2.5.1). The "Form 1065 e-File Waiver Request" in the IRS's own waiver guidance is for a return not yet filed. For a qualifying small partnership facing a late-filing or incomplete-return charge, Rev. Proc. 84-35 can remove the penalty entirely on a signed statement returned with the notice itself — no separate written narrative required, unlike ordinary reasonable-cause relief.

Common Questions