IRS Penalty Relief and First-Time Abatement

Which IRS penalties can be removed

The IRS can relieve many penalties, including accuracy-related, information return and dishonored check penalties. The three that most people with a balance face are the ones first-time abatement and the new automatic relief cover:

When both the filing and payment penalties apply in the same month, the failure-to-file penalty is reduced by the failure-to-pay amount, so the combined charge for that month stays at the failure-to-file rate. After five months the failure-to-file penalty is maxed out, but the failure-to-pay penalty keeps running until the tax is paid. For the difference between the two, see failure to file vs failure to pay, and for the other penalty types, 5 types of IRS penalties.

New in 2026: the Automatic Exemption from Penalty

AEP fully replaces first-time abatement for eligible returns originally due on or after January 1, 2027. It covers Forms 1040, 1065 and 1120, employment tax returns 940, 941, 943, 944 and 945, and Form CT-1. It does not cover information returns or one-time returns like estate and gift tax returns. The details, including what happens during the changeover, are on our Automatic Exemption from Penalty guide.

First-time abatement: who qualifies

First-time abatement (FTA) is an administrative waiver the IRS has used since 2001. It is based on your history, not your excuse. You don’t even have to name it: when you ask for relief, the IRS checks FTA first and applies it before looking at reasonable cause. According to IRS.gov (July 2026), you qualify if:

• you filed the same type of return on time for the 3 years before the penalized period (or 12 consecutive quarters for quarterly filers), and
• you had no penalties in that period, other than an estimated tax penalty, or any penalty was removed for reasonable cause or IRS error (not by an earlier FTA), and
• for businesses, the IRS did not waive failure-to-deposit penalties four or more times in that period, and the deposit penalty was not charged for avoiding EFTPS.

FTA covers one tax period. If you have penalties on several periods, only one can get FTA and the others need reasonable cause. It does not apply to event-based returns such as Forms 706 and 709, to information returns, or to the daily delinquency penalty.

Can you still ask for first-time abatement in 2026?

Yes. An IRS fact sheet (FS-2026-12) says FTA remains available, on request, for eligible 2024 tax year returns, 2025 quarterly returns, and 2025 annual and 2026 quarterly returns processed before AEP started. The IRS also says some people who qualify may still get penalty notices for 2025 returns during the changeover and can call to request FTA. For returns originally due on or after January 1, 2027, FTA ends and AEP takes over.

Reasonable cause: when you had a good reason

If your record is not clean, you can still get penalties removed by showing you “exercised ordinary care and prudence” and still could not file or pay on time. The IRS decides case by case. Reasons it lists as potentially valid:

• fire, natural disaster or civil disturbance
• being unable to get your records
• death, serious illness or unavoidable absence of you or an immediate family member
• system problems that delayed a timely electronic filing or payment

Reasons that usually don’t work on their own: relying on a tax preparer, not knowing the rules, simple mistakes, and lack of money. Lack of funds alone is not reasonable cause, though it can count alongside other facts showing you tried to comply. Reasonable cause does not apply to the estimated tax penalty.

Your explanation should say what happened and when, how it stopped you from filing or paying, and what you did to comply once you could. Back it with documents such as hospital or court records with dates, disaster documentation, or letters. Our penalty abatement letter template shows the structure.

Statutory exceptions and IRS error

Some penalties should never have been charged. The IRS lists these common statutory exceptions:

• Incorrect written IRS advice. You asked the IRS in writing, got a wrong written answer and relied on it. Send a copy of the advice and the notice.
• Mailed on time. A paper return or payment postmarked by the deadline, correctly addressed with postage, by USPS or an approved private delivery service, is on time. A timely e-filed return that was rejected counts as on time if you resend it within 10 days of the rejection notice.
• Federal disaster areas and combat zones. Deadlines are often postponed automatically; a penalty charged during the postponement can be removed.

If you have proof that you filed or paid on time, or the penalty came from an IRS mistake, say so. The IRS should correct the account rather than use your one-time FTA waiver on it.

How to request penalty relief, step by step

1. Check the notice. Confirm the tax period, penalty and amount. If the notice is wrong, follow its instructions; a corrected account may mean no penalty.
2. File any missing returns and deal with the balance. Pay it, or apply for a payment plan through the IRS Online Payment Agreement; that also cuts the failure-to-pay rate for timely filers.
3. Call the number on the notice. Have the notice, the penalty you want removed and your reasons. The IRS can approve many requests during the call, and it checks first-time abatement automatically.
4. If not approved by phone, write. File Form 843, Claim for Refund and Request for Abatement, or a signed letter to the address on the notice, with your explanation and documents.
5. Appeal a denial. If a written request is denied, you can generally ask the IRS Independent Office of Appeals to review it within 30 days of the denial letter. Check the letter for your exact deadline.

You can do all of this yourself. A Low Income Taxpayer Clinic or the Taxpayer Advocate Service can help if you’re stuck. A professional is most useful for reasonable cause requests on large penalties, several years, business deposit penalties, or appeals.

What penalty relief does not remove: tax and interest

Penalty relief removes penalties only. You still owe the tax. Interest runs on unpaid tax at the federal short-term rate plus 3 percentage points (IRS.gov, 2026), reset quarterly. For July through December 2026 that is 7% (IRS.gov, Jul-Dec 2026) a year, compounded daily, per IRS.gov. Two rules decide what happens to interest:

• Interest on a removed penalty goes too. The IRS automatically reduces or removes the interest charged on any penalty it reduces or removes.
• Interest on the tax stays. Interest is required by statute and is not removed for hardship or reasonable cause. The narrow exception is interest caused by an IRS employee’s unreasonable error or delay in a ministerial or managerial act after the IRS contacted you in writing (IRC 6404(e)), requested on Form 843.

Example (assumed figures)

You owed $8,000 on a return filed three months late and paid in full at the same time. The failure-to-file penalty is 4.5% a month after the offset for three months, or 13.5%, which is $1,080. The failure-to-pay penalty is 1.5% for three months, or $120. That is $1,200 of penalties plus interest on them. If first-time abatement or AEP applies, the $1,200 and the interest on it are removed. Interest on the $8,000 for those three months stays. Estimate your own numbers with our penalty and interest calculator.

Frequently asked questions

Keep reading in the Fresh Start hub

• Automatic Exemption from Penalty (AEP)How the IRS's automatic penalty relief works from 2026.
• Form 843 explainedRequesting penalty abatement in writing.
• Penalty and interest calculatorEstimate penalties and interest on a late return or payment.
• IRS payment plans comparedStop penalties growing while you pay over time.
• Fresh Start key figures for 2026Penalty rates, fees and limits with IRS sources.