If you filed and paid on time for the three years before a late return, the IRS may remove the late-filing, late-payment or late-deposit penalty. For older years you ask for it (First Time Abate). For 2025 tax year returns and 2026 quarterly returns onward, the new Automatic Exemption from Penalty means the penalty is never assessed and you do not need to ask (IRS administrative penalty relief).
What is First Time Abate?
First Time Abate (FTA) has been the most common administrative penalty relief, according to the IRS. It applies when you have a history of timely compliance: the same type of return filed on time for the prior three years (or 12 consecutive quarters), and no penalties in that period, or only penalties later removed for reasonable cause or IRS error (IRS administrative penalty relief).
You have to ask for it. Call the number on your notice, or send a written statement or Form 843. You do not need to name FTA in the request; the IRS checks your account to see whether you meet the conditions.
What changes with the Automatic Exemption from Penalty?
The IRS says the Automatic Exemption from Penalty (AEP) begins in summer 2026. It applies to 2025 tax year returns and 2026 quarterly returns, and everything after. If you file or pay late but IRS records show a clean history for the prior three years (or 12 quarters), the failure-to-file, failure-to-pay or failure-to-deposit penalty is simply not assessed.
You will know because the IRS sends a letter saying the penalty was not assessed because of your compliance history. You do not have to reply. Under FTA, by contrast, the penalty is assessed first and removed later, and the failure-to-pay penalty can keep growing until the tax is paid.
Which returns and penalties qualify?
The IRS lists the eligible returns for AEP as Forms 1040, 1065 and 1120, payroll and related Forms 940, 941, 943, 944 and 945, and Form CT-1. The penalties covered under FTA or AEP are:
- Failure to file a tax return (IRC 6651(a)(1)), a partnership return (IRC 6698(a)(1)) or an S corporation return (IRC 6699(a)(1)).
- Failure to pay tax shown on the return (IRC 6651(a)(2)), or tax not shown but demanded in a notice (IRC 6651(a)(3)).
- Failure to deposit tax correctly and on time (IRC 6656).
Who does not qualify?
Returns filed only once or rarely (event-based filing), the Daily Delinquency Penalty, and information reporting that depends on another filing are excluded. Businesses also need no more than three failure-to-deposit waivers in the prior three years and no penalty charged for avoiding EFTPS.
If you do not qualify, you can still ask for relief based on reasonable cause, such as a serious illness or a disaster, and the IRS decides on the facts. When a penalty is removed, the IRS automatically reduces the interest charged on that penalty too.
Houston and Fort Bend: check the storm postponement first
If you live or run a business in Harris or Fort Bend County, the IRS storm relief announced October 27, 2026 postponed many deadlines falling between July 14, 2026 and February 1, 2027 to February 1, 2027. The IRS says that if you get a late-filing or late-payment penalty notice with an original due date inside that window, you should call the number on the notice to have the penalty removed (IRS release TX-2026-05). That is a separate route from FTA and AEP, and worth trying first.
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Written by Tax Solution Pro Advisor (about the firm). General information, not advice for your situation. IRS rules change; each rule above links the IRS page it comes from.