I am commenting after ONLY  CURSORY REVIEW of it........so do not rely on these comments until your tax person checks it out in detail.

Why this issue could be pertinent to you
If you have been doing business as a partnership--------even to the extent of only a small part of your overall activities-------and IRS audits.......and expect audits to increase since Govt is looking for operating money..........and Agent sees that you are doing business with someone else, and sharing income and expenses...........

that is a partnership arrangement..........and requires a partnership return.

The penalty for not filing a partnership return is----------- 50 per month of late filing, per partner, up to five months.  So......... say there are two of you---------- 100 per month, for five months = 500. per return not filed.

and, of course, you have not filed for six years...........6 yrs for 500 per year = 3,000.   And, since no returns were filed, there is no statute of limitations to protect you.

Slam dunk!    Looks like easy money for the IRS.


Background
Every partnership is required to file an annual income tax return (Section 6031)

Partnerships that fail to to timely file a return are subject to penalties under Section 6698.

However, Congress wanted to make things easier on "small partnerships"--------with one of the definitional items being ten or fewer partners, all of which are natural persons.

It appears that the intent of Congress only appears in the Joint Committee notes.

Revenue Procedure 84-35 was IRS's response to that intent of Congress.

What it does

In the event that a return of a qualifying partnership is filed not timely...........or maybe not even filed..........and IRS levies penalties for that late filing........., 

......the Partnership (ie the partners) can provide the data noted in Rev Proc 84-35, and request abatement of the penalties, and IRS is supposed to grant the abatement.

Note that an assessment of the penalties has to occur first in order for IRS to grant an abatement, so the use of the Rev Proc is retrospective in nature.  (Cannot forgive a penalty until one exists.)

NOTE----------- this does not allow a partnership to not file...........partnerships must still file the returns.   The use of this Revenue Procedure merely kills the penalties in the event IRS assesses penalties for late filing.........AND   IT   ONLY  KILLS the penalties if you REQUEST the application of the procedure.

(So------if you're not aware of the potential for abating the penalty, and IRS does not tell you of its availability-------guess how many taxpayers will just go ahead and pay the penalty??   If you were IRS, looking for money, would you tell a taxpayer about how to avoid the penalty?   unless you HAD to??)

IRS Chief Counsel issued a statement on this issue on 08/31/01.......no. 200135029...........which outlines the circumstances very clearly.   In the memo, IRS counsel criticizes the Service for not making the public aware of this revenue procedure when they assess the penalty.

Crap happens---------I was in a small partnership a couple of years ago................late filed the return due to silly circumstances..........was not aware of this revenue procedure--------- and paid over 450 in penalties when IRS noted that the return was late-filed.  I was not aware of the Rev Proc.........and IRS certainly did not tell me of its existence.

(Obviously I am now going back to check if we qualified for the abatement under Rev Proc 84-35...........and if still within statute, will request the abatement.)
 
FWIW.