While it is true that partnerships themselves do not pay federal income taxes, a Form 1065 partnership return is still required to be filed annually and serious penalties can arise if these returns are not filed. The penalties are $195 per partner, per month for 12 months. In short, a 4 person partnership (or LLC taxed as a partnership) could incur a $9,360 penalty by failing to file a return for more than one year. The reason these penalties are so draconian is because the IRS wants to ensure that the partners have the necessary information to compute and pay their taxes using the schedule K-1 that comes from the partnership return--without a K-1, the partners do not know how much pass-through income they have.
Fortunately, if you are a small partnership and the partners properly paid their share of income taxes, there are ways to completely eliminate these assessed failure to file penalties. Revenue Procedure 84-35 provides the rules and explains the circumstances when a partnership can have these penalties abated. If the partnership can answer "yes" to the below questions, the penalty will be removed:
If you can answer in the affirmative to all of the above then you can apply for full penalty abate by preparing a simple letter to the IRS.