1. How IRS First Time Penalty Relief Is Changing
First Time Abate, or FTA, allows qualifying taxpayers with a strong compliance history to obtain relief from certain penalties without establishing reasonable cause. The IRS is now transitioning eligible taxpayers from this request-based process to Automatic Exemption from Penalty, or AEP.
When First Time Abate Still Applies
FTA remains relevant for eligible prior periods and certain returns during the transition. A taxpayer who receives a penalty notice may therefore need to determine whether traditional FTA remains available for the return at issue.
For eligible original returns with due dates on or after January 1, 2027, AEP is scheduled to replace FTA.
How Automatic Exemption from Penalty Works
AEP applies to eligible original returns beginning with tax year 2025 and eligible quarterly returns beginning in 2026. When IRS records establish the required compliance history, qualifying relief can be applied during return processing without a separate request.
Annual filers generally need a compliant filing and payment history for the preceding three years, while quarterly filers generally need a compliant history for the preceding 12 consecutive quarters.
2. Which IRS Penalties May Qualify for Relief?
FTA and AEP apply only to qualifying penalties. The applicable relief depends on the penalty, tax period, and taxpayer's compliance history.
| Penalty | Primary IRC Provision | General Penalty Structure | Potential Relief |
|---|---|---|---|
| Failure to File | IRC § 6651(a)(1) | Generally 5% per month, subject to limits | FTA or AEP where eligible; Reasonable Cause |
| Failure to Pay | IRC § 6651(a)(2) | Generally 0.5% per month, subject to limits | FTA or AEP where eligible; Reasonable Cause |
| Failure to Deposit | IRC § 6656 | Rate varies based on length of delay | FTA or AEP where eligible; Reasonable Cause |
When failure-to-file and failure-to-pay penalties apply during the same month, coordination rules affect the calculation rather than simply combining the standard percentages.
Penalty relief also does not eliminate the underlying tax liability. Taxpayers dealing with unpaid balances may need to address the debt separately through Tax Debt Relief.
3. What If Automatic Penalty Relief Does Not Apply?
A penalty assessment does not necessarily end the possibility of relief. Depending on the tax period and circumstances, a taxpayer may still qualify for FTA or establish reasonable cause.
Requesting First Time Abate
Where FTA remains available, taxpayers may contact the IRS using the telephone number on the applicable notice or letter. A written request or Form 843 may also be appropriate in some cases.
Form 843 is one method of seeking abatement rather than a required first step in every FTA matter.
Using Reasonable Cause
Taxpayers who do not qualify for administrative relief may seek penalty abatement based on reasonable cause. The IRS generally considers whether the taxpayer exercised ordinary business care and prudence but was nevertheless unable to comply.
Supporting records become particularly important when relief depends on the taxpayer's individual circumstances rather than prior compliance history. Broader liability issues may also require consideration of Tax Delinquency and Penalties.
4. When an Attorney May Be Important in a Penalty Dispute
Not every IRS penalty requires the same response. Legal review becomes more significant when eligibility is unclear, substantial penalties are involved, reasonable cause must be established, or an initial relief request has been denied.
Reviewing Eligibility and IRS Records
An attorney can review IRS account transcripts, prior filing history, the assessed penalty, and the relevant tax period to determine whether AEP, FTA, or reasonable cause may apply.
This review can also identify whether a penalty appearing on an IRS notice should have received automatic relief under the current AEP rules.
Responding to a Denial or Broader Tax Dispute
If administrative relief is unavailable or denied, the next step depends on the penalty and procedural status. Some matters may require a reasonable cause submission or administrative review rather than another FTA request.
When the dispute involves an examination or underlying tax liability in addition to penalties, an IRS Audit Defense strategy may address those issues together.
Example of First Time Penalty Relief
Consider a Brooklyn taxpayer who normally files and pays federal taxes on time but files an eligible return late after several years of compliance.
For an older tax period, the taxpayer may need to request FTA after receiving a penalty. For a return covered by AEP, qualifying relief may instead occur automatically during processing. If neither applies, the taxpayer may still consider reasonable cause based on the circumstances that led to the late filing.
5. Frequently Asked Questions
Does IRS penalty relief also remove interest on unpaid tax?
FTA or AEP does not independently eliminate interest on the underlying unpaid tax. When an assessed penalty is abated, however, the IRS generally adjusts interest attributable to that penalty. Separate interest abatement is available only in limited circumstances.
Can business owners receive relief for payroll tax penalties?
Certain employment tax returns, including Forms 940 and 941, may qualify for administrative penalty relief. Quarterly filers generally need the applicable 12-consecutive-quarter compliance history, and eligibility should be evaluated separately from other payroll tax liabilities.
27 Aug, 2026
