CP 575 Course Day 28 Post
Day 28: Annual Filing Requirements and Penalties for Wrong Form Submission
Once an LLC determines its correct federal tax classification using Notice CP 575, the next step is staying compliant every year. Day 28 focuses on the annual filing obligations for each entity type and the serious IRS penalties that apply when an LLC files the wrong form—one of the most common errors caused by misunderstanding CP 575.
This lesson helps ensure your tax filings match the classification the IRS has on record for your EIN.
Why Wrong Filings Happen
Most incorrect submissions occur because:
• CP 575 classification is misunderstood
• A tax election was filed but not approved
• Owners believe state classification automatically applies to IRS
• Tax software defaults to the wrong form
• LLCs switch accountants and document history gets lost
This is why CP 575 must be reviewed annually before filing.
Annual Filing Requirements Based on Classification
Every tax classification carries specific annual obligations. Missing or filing the wrong form can trigger penalties, missed elections, and IRS mismatch notices.
1. Disregarded Entity (Single-Member LLC)
Required Federal Filing:
• Form 1040 Schedule C (or Schedule E/F depending on activity)
If the LLC has employees or excise taxes, separate filings apply (Forms 941, 940, 720, etc.).
Common Mistake:
Filing Form 1065 by accident.
Consequence:
IRS rejection + delayed processing + possible penalties for late Schedule C reporting.
2. Partnership (Multi-Member LLC)
Required Federal Filing:
• Form 1065
• Schedule K-1 issued to each member
Common Mistake:
Filing as a disregarded entity or filing 1120-S without approval.
Penalties for Late or Incorrect 1065:
• $240 per partner, per month
• Up to 12 months
• Automatic penalty even if LLC made zero income
If the filing is wrong, penalties apply until a corrected 1065 is filed.
3. S-Corporation (Elected via Form 2553)
Required Federal Filing:
• Form 1120-S
• K-1 to each shareholder
• Payroll filings (W-2, 941, 940, state payroll taxes)
Common Mistakes:
• Filing as a partnership because the accountant didn’t check CP 575
• Filing 1120-S when the election was not approved
Penalties:
• $240 per shareholder per month for late 1120-S
• Late payroll penalties up to 15%
• Loss of S-Corp status if filings repeatedly mismatch IRS records
4. C-Corporation (Elected via Form 8832)
Required Federal Filing:
• Form 1120
• Corporate tax payments
• Estimated taxes (Form 1120-W)
Common Mistake:
Filing 1120-S without election approval.
Penalties:
• Corporate late filing: 5% per month (up to 25%)
• Underpayment penalties on estimated taxes
How Wrong Filing Triggers IRS Penalties
If the IRS system shows one classification but you file another:
-
IRS flags mismatch
-
Return is rejected, considered unfiled
-
Late filing penalties begin from original deadline
-
Notices (CP 2000, CP 259, Letter 5262C) are issued
-
Possible loss of tax elections if not corrected promptly
CP 575 is the FIRST document to confirm what IRS expects from you.
How to Avoid Penalties Every Year
Follow these steps before submitting any tax form:
-
Check CP 575
• Confirm classification and EIN accuracy. -
Verify any elections
• Check acceptance letters for Form 2553 or 8832. -
Match tax software settings
• Many software defaults do NOT match IRS classification. -
Review ownership structure annually
• New members or ownership changes affect filing type. -
If filing wrong form previously, correct immediately
• File Form 1120-SX, 1065X, or amended return.
Conclusion
CP 575 Day 28 Post FI
Day 28 teaches the most important part of compliance—filing the correct annual return based on the classification the IRS recognizes through CP 575. Filing the wrong form not only causes delays but can generate expensive penalties that compound monthly.
Tomorrow’s lesson will cover final compliance checks before year-end filing so you never submit the wrong form again.
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