IRS Penalty Abatement

There are three main paths to relief: administrative waivers (First Time Abate and the new Automatic Exemption from Penalty), reasonable cause, and IRS error or statutory exceptions.

• The same type of return was filed on time for the prior three years.
• No penalties were assessed in that period, except an estimated tax penalty or one that was later removed for reasonable cause or IRS error.
• You meet the other requirements, such as having filed all currently required returns and paid or arranged to pay the tax due.

New for 2026: the IRS says FTA is transitioning to a new relief called Automatic Exemption from Penalty (AEP), starting summer 2026. Under AEP, if you file or pay late but IRS records show three prior years (or 12 consecutive quarters) of timely compliance, the IRS will not assess the failure-to-file, failure-to-pay, or failure-to-deposit penalty in the first place. You'll get a notice explaining the relief, and you don't need to respond. AEP starts with 2025 tax year returns (Forms 1040, 1065, 1120) and 2026 quarterly returns (Forms 940, 941, 943, 944, 945, and CT-1), plus later periods.

So for recent returns, many people with good history may never see the penalty. For older years, or if you got a penalty notice you think AEP should have covered, a request is still needed. You can request FTA by phone or in writing, including on Form 843.

Examples include serious illness, a death in the immediate family, natural disasters, or being unable to get records. These requests depend on facts and documentation. A clear, well-documented written explanation that ties the event to the specific years and penalties makes the difference.

Other penalties, such as accuracy-related penalties, usually require reasonable cause or another basis. We review your transcripts to see which penalties are on each year and which relief path fits each one.

1. Pull your IRS account transcripts to list every penalty by year and type.
2. Check eligibility for FTA, AEP, reasonable cause, and IRS error.
3. Sequence the requests so administrative relief is used on the year where it saves the most.
4. Prepare and submit the request by phone, letter, or Form 843, with supporting documents.
5. Appeal denied reasonable cause requests when the facts support it.
6. Combine abatement with a payment plan or other resolution so the reduced balance is handled.

Penalty abatement works especially well for small business owners hit with payroll deposit penalties, and for individuals catching up on late returns.