The IRS assesses a failure-to-file penalty of $235 per shareholder, per month (or part of a month) that the return is late, up to a maximum of 12 months. For a 5-shareholder S-Corp, a single month of lateness generates a $1,175 penalty — before interest. Furthermore, if the IRS determines the failure was fraudulent, a 15% monthly penalty applies, up to 75% of unpaid tax. Filing Form 7004 by March 15th eliminates this risk entirely for entities that need more time.