Form 1065 (Partnership) COVID Penalty Refund

Partnerships and multi-member LLCs hit with §6698 late-filing penalties on Form 1065 during Jan 20, 2020 – July 10, 2023 may be eligible for refunds under Kwong. The §6698 penalty stacks per partner per month and can be substantial. File Form 843 by July 10, 2026. Refund eligibility is not guaranteed; Kwong is being appealed.

Who qualifies

Partnerships and LLCs taxed as partnerships, charged the §6698 late-filing penalty on Form 1065 during the COVID-19 disaster window, may qualify. The §6698 penalty stacks at approximately $245 per partner per month (12-month cap), so partnerships with multiple members can accumulate large penalty exposure. The Kwong reasoning suggests these penalties may not have been validly assessed during the suspended-deadline window.

  • Partnership account transcript shows a §6698 penalty assessment dated between Jan 20, 2020 and July 10, 2023.
  • Form 1065 was due (typically March 15) within the disaster window.
  • The penalty applied to the partnership entity — not to individual partners' personal returns (those are addressed under Form 1040).

How much could I get back?

Larger partnerships can have significant refund exposure: a 10-partner LLC at the §6698 cap could face penalties exceeding $25,000 per assessed year. Multiple-year exposure compounds. Refund eligibility and amounts cannot be guaranteed.

Why this specifically

Partnerships often manage tax compliance through outsourced accountants who may not have surfaced the Kwong opportunity. The 12-month per-partner stacking structure of §6698 means even mid-sized partnerships can have material recoverable amounts.

FAQ

Can a single-member LLC file under this?

No — single-member LLCs are disregarded entities and file as Schedule C on the owner's Form 1040. Use the Form 1040 page instead. This page applies to multi-member LLCs filing Form 1065.

What if some partners want to file and others don't?

The §6698 penalty is assessed at the partnership level, not the partner level. The partnership files Form 843 as a single entity. Distribution of any recovered refund among partners follows the partnership's standard allocation rules.

Does this apply if our 1065 was filed late but no penalty was charged?

If no penalty or interest was assessed, there is nothing to claim back. Pull your account transcript to confirm whether a §6698 assessment exists.