Interest and Penalties

Caution: If the corporation receives a notice about penalties after it files its return, send the IRS an explanation and we will determine if the corporation meets reasonable-cause criteria. Don’t attach an explanation when the corporation’s return is filed.

Interest. Interest is charged on taxes paid late even if an extension of time to file is granted. Interest is also charged on penalties imposed for failure to file, negligence, fraud, substantial valuation misstatements, substantial understatements of tax, and reportable transaction understatements from the due date (including extensions) to the date of payment. The interest charge is figured at a rate determined under section 6621.

Late filing of return. 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. See Caution , earlier. For returns on which no tax is due, the penalty is $255 for each month or part of a month (up to 12 months) the return is late or doesn’t include the required information, multiplied by the total number of persons who were shareholders in the corporation during any part of the corporation’s tax year for which the return is due. If tax is due, the penalty is the amount stated above plus 5% of the unpaid tax for each month or part of a month the return is late, up to a maximum of 25% of the unpaid tax. The minimum penalty for a tax return required to be filed in 2026 that is more than 60 days late is the smaller of the tax due or $525.

Late payment of tax. A corporation that doesn’t pay the tax when due may generally be penalized ¹ /2 of 1% of the unpaid tax for each month or part of a month the tax isn’t paid, up to a maximum of 25% of the unpaid tax. The penalty won’t be imposed if the corporation can show that the failure to pay on time was due to reasonable cause. See Caution , earlier.

Failure to furnish information timely. For each failure to furnish Schedule K-1 (and Schedule K-3, if applicable) to a shareholder when due and each failure to include on Schedule K-1 (and Schedule K-3, if applicable) all the information required to be shown (or the inclusion of incorrect information), a $340 penalty may be imposed with respect to each Schedule K-1 (and Schedule K-3, if applicable) for which a failure occurs. If the requirement to report correct information is intentionally disregarded, each $340 penalty is increased to $680 or, if greater, 10% of the aggregate amount of items required to be reported. See sections 6722 and 6724 for more information.

The penalty won’t be imposed if the corporation can show that not furnishing information timely was due to reasonable cause. See Caution, earlier.

Trust fund recovery penalty. This penalty may apply if certain excise, income, social security, and Medicare taxes that must be

Instructions for Form 1120-S (2025) 5

collected or withheld aren’t collected or withheld or these taxes aren’t paid. These taxes are generally reported on:

• Form 720, Quarterly Federal Excise Tax Return;

• Form 941, Employer’s QUARTERLY Federal Tax Return;

• Form 943, Employer’s Annual Federal Tax Return for Agricultural Employees;

• Form 944, Employer’s ANNUAL Federal Tax Return; or

• Form 945, Annual Return of Withheld Federal Income Tax. The trust fund recovery penalty may be imposed on all persons who are determined by the IRS to have been responsible for collecting, accounting for, or paying over these taxes and who acted willfully in not doing so. The penalty is equal to the full amount of the unpaid trust fund tax. See the Instructions for Form 720 or Pub. 15 (Circular E), Employer’s Tax Guide, for details, including the definition of “responsible persons.”

Other penalties. Other penalties can be imposed for negligence, substantial understatement of tax, reportable transaction understatements, and fraud. See sections 6662, 6662A, and 6663.