IRS Penalty Relief: First Time Abate, the New Automatic Exemption From Penalty, and Reasonable Cause
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How we wrote this: A summary of the IRS's "Penalty relief," "Administrative penalty relief" and "Penalty relief for reasonable cause" pages (linked below), checked October 29, 2026. This is general information, not tax advice. Whether relief applies depends on your account history; the IRS decides.
A late Form 941, a tax payment a week past due, a payroll deposit that went in on the wrong day: each can bring an IRS penalty, plus interest on that penalty. The IRS has long offered a one-time break for people with a clean record, and in summer 2026 it started a new automatic version. Here's how the pieces fit together.
Which penalties can be relieved
The IRS's penalty relief page lists penalties eligible for some form of relief, including failure to file, failure to pay, failure to deposit, information return, accuracy-related, dishonored check and estimated tax penalties. There are three types of relief:
- First-time abate and other administrative waivers
- Reasonable cause
- Statutory exception
The first two matter most to a small business.
First Time Abate (FTA): the long-standing one-time break
According to the IRS's administrative relief page, FTA has been the most common relief for people with a history of timely compliance. It covers three penalties, regardless of amount: failure to file, failure to pay, and failure to deposit.
With FTA you have to ask. But you don't need to name FTA or send documents; the IRS reviews your account to see whether you qualify. You can:
- Call the number on your notice or letter, or
- Send a written statement or Form 843, Claim for Refund and Request for Abatement.
New in 2026: Automatic Exemption from Penalty (AEP)
The IRS says FTA is transitioning to a new relief called Automatic Exemption from Penalty, starting summer 2026. Under AEP, if you file or pay late but filed and paid on time for the three prior years (or 12 consecutive quarters for quarterly filers), the penalty isn't assessed at all.
| First Time Abate | Automatic Exemption from Penalty | |
|---|---|---|
| Returns covered | All prior years and periods, plus eligible 2025 and 2026-quarter returns not considered for AEP | 2025 tax-year returns and 2026 quarterly returns, and later |
| How you get it | You must contact the IRS | Automatic |
| Penalty | Assessed first, then removed | Never assessed |
| Failure-to-pay penalty | May keep accruing until the tax is paid | Doesn't accrue on the unpaid tax |
AEP applies to Forms 1040, 1065 and 1120, employment tax Forms 940, 941, 943, 944 and 945, and Form CT-1. It's applied when the original return finishes processing. If it applies, you'll get a letter saying the penalties weren't assessed because of your compliance history; you don't need to respond. You still owe the unpaid tax, the interest, and any other penalty AEP doesn't cover.
If you get a notice showing a penalty but think AEP should have applied, the IRS says to contact it.
The clean-history test
For both FTA and AEP, the IRS says you need:
- The same return type filed on time for the prior three years (or 12 consecutive quarters), and
- No penalties in that period, except an estimated tax penalty, or a penalty that was later removed for reasonable cause or IRS error.
Businesses have two extra conditions:
- The IRS didn't waive the failure-to-deposit penalty four or more times in that period, and
- The deposit penalty wasn't charged for avoiding EFTPS (paying another way when electronic deposit was required). Our guide to paying business taxes online covers the electronic options.
Not eligible: returns filed once or infrequently (event-based returns), the Daily Delinquency Penalty, and information reporting that depends on another filing.
If you don't qualify: reasonable cause
The IRS's reasonable cause page says relief can apply if you used "ordinary care and prudence" and still couldn't file or pay on time. It's decided case by case. For a business, the reasons are judged for the person with authority to file or pay.
Examples the IRS gives that may qualify:
- Fires, natural disasters or civil disturbances
- Being unable to get records
- Death, serious illness or unavoidable absence of the taxpayer or immediate family
- System issues that delayed a timely electronic filing or payment
Reasons that generally don't qualify on their own:
- Relying on a tax professional. You're still responsible; get proof your return or payment went in.
- Not knowing the rule.
- Mistakes and oversights, unless other facts show you tried to comply.
- Lack of funds, by itself.
Reasonable cause doesn't apply to some penalties, such as the estimated tax penalty, which has its own rules. See estimated quarterly taxes.
How to ask, step by step
- Check the notice first. The IRS says that if the information on it is wrong, follow the notice's instructions; fixing the error may remove the penalty.
- Call the toll-free number on the notice. Have the notice, the penalty you want removed, and your reasons. The IRS says it will tell you during the call whether relief is approved.
- If it can't be approved by phone, file Form 843.
- If relief is denied, the IRS points to its penalty appeal page.
You can also authorize someone to call for you with Form 2848, and the independent Taxpayer Advocate Service helps when you can't resolve it yourself.
Interest comes off too
The IRS charges interest on penalties. When a penalty is reduced or removed, the IRS says it automatically reduces or removes the related interest.
Keep a clean record to stay eligible
Relief is easiest to get if the three prior years are clean, so the best protection is not missing deadlines. Our W-2 and 1099 deadlines for 2027, Form 941 basics and records retention guides can help.