Updated September 7, 2026. This guide reflects the IRS’s July 2026 announcement of the Automatic Exemption from Penalty, which changes how first-time relief works from 2027. Nothing here is a guarantee that a penalty will be removed; eligibility is decided by the IRS on your account history.
The short answer: if you have a clean filing history for the three years before a late return or late payment, the IRS will usually remove the failure-to-file, failure-to-pay or failure-to-deposit penalty for that one period under First-Time Abate (FTA). You do not have to prove a reason; you ask, and the IRS checks your record. Interest on the penalty goes with it, but interest on the tax stays. From 2027 the IRS is replacing FTA with an automatic version — the Automatic Exemption from Penalty (AEP) — that applies during return processing without a request. If you do not qualify for either, reasonable-cause relief is the fallback, and it requires an explanation and evidence.
Which penalties First-Time Abate covers
FTA applies to three penalties, and only these:
- Failure to file — 5% of the unpaid tax per month, up to 25%, with a minimum of $525 for returns due in 2026 that are more than 60 days late. For partnership and S corporation returns, $255 per partner or shareholder per month, up to 12 months.
- Failure to pay — 0.5% of the unpaid tax per month, up to 25% (0.25% while an approved installment agreement is in place; 1% after a levy notice).
- Failure to deposit — 2%, 5%, 10% or 15% of a late payroll tax deposit, depending on how late.
It does not cover the accuracy-related penalty (the 20% penalty on a CP2000 or audit adjustment), the estimated tax penalty, information-return penalties (late 1099s or W-2s), or penalties on returns filed only for one-off events such as estate and gift tax returns. Those need reasonable cause or another specific defense.
Who qualifies
The IRS looks at your account, not your story. You qualify for FTA on a return when:
- The same type of return was filed on time for the three prior years (or 12 consecutive quarters for payroll returns), or there was no requirement to file it.
- No penalty was assessed in those three years, other than an estimated tax penalty — or a penalty was assessed but later removed for reasonable cause or IRS error.
- You are current now: all required returns are filed (or extended) and any tax due is paid or on an approved payment plan.
Two practical consequences. First, FTA is one period at a time: if you have three late years, FTA can only clear the first one, and only if the three years before it were clean. Second, an installment agreement counts as “arranged to pay,” so you do not have to pay the balance in full to ask — but the penalty keeps accruing on any unpaid tax until it is paid, so the abatement covers what has accrued to that point and the IRS may need to remove the remainder later.
How to request First-Time Abate
There are three ways, and none requires you to name the program or attach documents:
- By phone, using the number on your penalty notice. For most individual penalties this is the fastest route; the representative checks the three-year history while you wait and can often remove the penalty on the call.
- In writing, with a short letter to the address on the notice asking for penalty relief under the first-time abatement policy, listing the tax form, period and penalty.
- On Form 843, Claim for Refund and Request for Abatement, which is the form to use if you already paid the penalty and want it refunded.
If the request is denied, the denial letter explains how to appeal. Denials are often because of a penalty in the lookback period that the taxpayer forgot about, so it is worth pulling your account transcripts first.
What changes in 2027: the Automatic Exemption from Penalty
On July 8, 2026 the IRS announced that it is replacing First-Time Abate with an automatic process. Under the Automatic Exemption from Penalty:
- When an eligible original return is filed late or paid late and the account shows three prior years of timely compliance, the failure-to-file, failure-to-pay or failure-to-deposit penalty is simply not assessed during processing. The IRS sends a notice saying so. No call, letter or form is needed.
- It begins in summer 2026 for tax-year 2025 returns and 2026 quarterly payroll returns, and for later periods.
- For returns with original due dates on or after January 1, 2027, AEP replaces FTA entirely.
- The eligible forms are the same as FTA: Forms 1040, 1065, 1120 (including 1120-S, whose late-filing penalty is listed), 940, 941, 943, 944, 945 and CT-1. Information returns, accuracy-related penalties and event-based returns are not covered.
- It applies at original processing only. It does not reach back to penalties already on the account, and it does not help a taxpayer whose prior three years were not clean.
During the 2026 transition the IRS says some qualifying taxpayers may still receive penalty notices for 2025 returns processed before the automatic process was switched on. For those, and for 2024 returns and 2025 quarterly returns, FTA is still available — but you have to ask for it; it is not applied automatically. Taxpayers who do not qualify for AEP can still request reasonable-cause relief.
Reasonable cause: the fallback when FTA does not fit
Reasonable-cause relief is different in kind. Instead of your history, the IRS looks at whether you exercised ordinary business care and prudence and were still unable to comply. It is decided case by case, it applies to more penalties (including the accuracy-related penalty), and it needs an explanation with dates and evidence.
Circumstances the IRS lists as potentially qualifying: a fire, natural disaster or other casualty; inability to obtain necessary records; death, serious illness or unavoidable absence of the taxpayer or an immediate family member; and system problems that prevented timely e-filing or payment. What the IRS says does not qualify on its own: relying on a tax professional (you remain responsible for filing on time), not knowing the law, a simple mistake, and lack of funds — although the circumstances that caused the lack of funds can matter.
The request goes by phone, by letter, or on Form 843, and should answer three questions: what happened, when it happened, and how it prevented you from filing or paying, with documents attached. Denials can be appealed.
Which relief applies to you
| Situation | Likely path |
|---|---|
| One late year, clean three-year history, return due in 2026 or earlier | First-Time Abate, requested by phone or letter |
| One late year, clean history, return due 2027 or later | Automatic Exemption from Penalty — nothing to request; check the notice |
| Penalty notice received on a 2025 return despite a clean history | Transition case: request FTA |
| Several unfiled years | File all years first; FTA can clear at most the first penalized period; reasonable cause for the rest if the facts support it. See unfiled tax returns. |
| Accuracy-related penalty on a CP2000 or audit | Reasonable cause only |
| Late 1099s or W-2s | Reasonable cause only |
| Cannot pay the tax itself | Payment plan first, then penalty relief; see IRS payment plan options |
Interest
By law the IRS cannot remove interest unless the penalty it relates to is removed. When a penalty is abated, the interest charged on that penalty is removed automatically. Interest on the underlying tax is not, which is why paying the tax as early as possible — even while the abatement request is pending — always saves money.
When to get help
A single FTA request on a personal return is a phone call most people can make themselves. Representation earns its cost when several years and penalties are stacked and the order of requests matters, when the case rests on reasonable cause and the evidence has to be assembled, when a denial needs to be appealed, or when penalty relief is one piece of a larger problem that also involves unfiled years, a balance and a payment plan. With Form 2848 we make the requests and handle the correspondence; our IRS resolution service is scoped and priced per matter before we start, and we will tell you plainly if your history does not support first-time relief rather than file a request that will be denied.
Common questions
Does First-Time Abate require a reason?
No. It is based on your compliance history, not on why you were late.
Can I get FTA more than once?
Yes, but not for consecutive years: each use requires three clean years before the penalized period.
Does FTA remove interest?
Only the interest charged on the abated penalty. Interest on the tax remains.
Do I have to pay the tax first?
You must have paid it or arranged to pay it, for example through an installment agreement.
Will the new automatic exemption fix penalties from earlier years?
No. It applies when an original return is processed, beginning with tax-year 2025 returns processed from summer 2026. Earlier penalties still need an FTA or reasonable-cause request.
Not sure whether your history qualifies? Send us the notice and we will check the account before anything is requested.
Sources
- IRS, Administrative penalty relief (First-Time Abate and Automatic Exemption from Penalty) — irs.gov
- IRS, IR-2026-83, IRS simplifies penalty relief, introduces automatic process (July 8, 2026) — irs.gov
- IRS, FS-2026-12, Automatic Exemption from Penalty: what taxpayers should know — irs.gov
- IRS, Penalty relief for reasonable cause — irs.gov
- IRS, Internal Revenue Manual 20.1.1, Penalty Handbook — irs.gov
- IRS, Failure to file, failure to pay and failure to deposit penalties — irs.gov, irs.gov, irs.gov
- IRS, About Form 843 — irs.gov
Questions about how this applies to your situation? We can talk it through and point you to the right next step.