New and Increased Filing Penalties for Businesses

Among the revenue offsetting provisions of HR 3648, the Mortgage Forgiveness Debt Relief Act of 2007, were increases in penalties on partnerships and S corporations for failure to timely file returns. The monthly penalty for failure to file required partnership returns on time (absent any extension) was increased from $50 per partner to $85 per partner. The maximum number of months the penalty may be assessed was increased from five to 12. Likewise, for S corporations, the act added new IRC § 6699, which imposes a penalty of $85 per month per shareholder for failure to timely file. The penalties are effective for returns required to be filed after the law’s enactment in December 2007.

Relief provisions of the act included most prominently the exclusion of discharge-of-indebtedness income of up to $2 million received on or after Jan. 1, 2007, from forgiveness of a mortgage on a taxpayer’s qualified principal residence.