IRS First Time Abate (FTA): Who Qualifies, How to Ask, and the New Automatic Exemption from Penalty

The short answer

First Time Abate (FTA) is the IRS's administrative penalty waiver. If you filed the same type of return on time for the prior 3 tax years (12 quarters for quarterly returns) and had no penalties other than estimated tax penalties, a failure-to-file, failure-to-pay or failure-to-deposit penalty can usually be removed. You can ask by phone, by letter or on Form 843, and interest on the penalty comes off with it; tax and interest on the tax stay. Starting summer 2026 the IRS is replacing FTA with the Automatic Exemption from Penalty (AEP), which applies automatically to eligible returns with original due dates on or after January 1, 2027. Penalties on information returns such as Forms 5471 and 3520 are generally not eligible for FTA.

Who this applies to

Individuals and businesses holding an IRS notice, such as a CP14 or CP161, that shows a "failure to file," "failure to pay" or "failure to deposit" penalty.

Typical cases: a family that filed Form 1040 late after a move, an illness or missing documents; a restaurant or nail salon owner who made Form 941 payroll deposits late; an S corporation or partnership that filed Form 1120-S or 1065 late and was penalized per shareholder or partner per month; a new U.S. company that missed its first deadline.

Most of all, it is for taxpayers with a clean record for whom this is the first problem. That is exactly who FTA was designed for.

Which penalties FTA covers

Late filing, late payment and late deposit penalties are covered; information-return and one-time filing penalties generally are not.

Covered

Failure to file: IRC §6651(a)(1) on income tax returns, plus late-filing penalties on partnership returns (§6698(a)(1)) and S corporation returns (§6699(a)(1)).

Failure to pay: IRC §6651(a)(2) and (a)(3), including tax shown on a return but not paid by the due date.

Failure to deposit: IRC §6656, for example payroll taxes not deposited on time through EFTPS.

Generally not covered

IRM 20.1.1.3.3.2.1 excludes returns with an event-based filing requirement (filed once or infrequently), the daily delinquency penalty, and information reporting that depends on another filing. Its examples include Forms 706, 709, 990, the 1099 series, 8300, 3520 and 3520-A, and Forms 5471 and 5472 (with a narrow exception referenced to IRM 20.1.9). So a late Form 5471 or 3520 penalty normally needs a reasonable cause request instead.

Estimated tax penalties (§6654/§6655) and accuracy-related penalties (§6662) are also outside FTA, as are partnership and S corporation penalties for an incomplete, rather than late, return.

The conditions

The IRS looks at a clean 3-year history, and FTA applies to one tax period at a time.

Filing history: you filed the same return for the 3 prior years (or 12 prior quarters), or had no filing requirement.

Penalty history: no penalties in those years other than estimated tax penalties. A penalty that was removed for reasonable cause or IRS error does not count against you. A prior FTA does.

Extra tests for businesses: the failure-to-deposit penalty was not waived four or more times in the prior 3 years, and it was not charged for EFTPS avoidance.

One period: if several years are penalized, FTA generally goes to the earliest; the rest need another basis.

Practical point: the IRS page does not list full payment as a condition, but the failure-to-pay penalty keeps accruing until the tax is paid. Pay in full or set up a payment plan first so the waiver covers the whole penalty.

How to ask, and the new automatic exemption

You can still request FTA by phone or in writing; eligible returns due from 2027 on are handled automatically.

By phone: call the number on the penalty notice. The IRS says you do not need to name FTA or attach documents; it reviews your account. Note the employee's ID and the date if relief is granted on the call.

In writing or on Form 843: send a short letter, or Form 843, Claim for Refund and Request for Abatement, to the address in its instructions. This also works for penalties already paid.

AEP: under News Release IR-2026-83 (July 8, 2026), the IRS began rolling out the Automatic Exemption from Penalty in summer 2026. For original returns for tax year 2025 and later and quarterly returns for 2026 and later, taxpayers with the same 3-year (or 12-quarter) record are not assessed failure-to-file, failure-to-pay or failure-to-deposit penalties during processing, and receive a notice confirming the relief. The IRS lists Forms 1040, 1065, 1120, 940, 941, 943, 944, 945 and CT-1. AEP fully replaces FTA for eligible returns with original due dates on or after January 1, 2027. During the transition, some eligible taxpayers may still get penalty notices for 2025 annual or 2026 quarterly returns and can request FTA.

Interest: the IRS automatically reduces interest tied to a penalty that is reduced or removed. Neither FTA nor AEP removes the tax or the interest on the tax.

If you don't qualify: reasonable cause

Without a clean record, or for penalties FTA does not cover such as Forms 5471 and 3520, you need reasonable cause.

Under IRM 20.1.1.3.5, you must show you exercised ordinary business care and prudence but could not comply because of circumstances beyond your control: serious illness, a death in the family, fire or disaster, or inability to get records. Give a timeline and documents. The IRM says that inability to pay alone ordinarily is not enough, and the burden of proof is on the taxpayer.

If both could apply, FTA is simpler because it needs no explanation. If you may need FTA later, consider asking under reasonable cause first.

A simple example

Simplified: interest is ignored.

Ms. Li filed her 2022 through 2024 returns on time with no penalties. Her 2025 Form 1040 was due April 15, 2026; she did not extend, and filed and paid the $10,000 balance on July 10, three months late (a partial month counts as a month).

Failure to file: 5% per month, reduced by the 0.5% failure-to-pay penalty for the same months, so 4.5% x 3 = 13.5%, about $1,350. Failure to pay: 0.5% x 3 = 1.5%, about $150. Total about $1,500 plus interest on the penalties.

She calls and gets FTA: the $1,500 and its interest are removed. Interest on the $10,000 from April 15 stays. For an eligible return due after January 1, 2027, the IRS would expect to apply AEP and not assess these penalties at all.

Common mistakes

Assuming penalties are final. Many people just pay. If you qualify, you can still ask for a refund on Form 843 after paying.

Expecting all interest to disappear. Only interest on the penalty is removed.

Using FTA for Forms 5471 or 3520. These international information-return penalties generally need a reasonable cause statement; act early.

Applying FTA to every penalized year. It covers one period.

Treating AEP as permission to file late. It only helps taxpayers with a clean record, using it affects the next 3 years, and tax and interest are still due.

What to do and when

When the notice arrives: confirm the penalty type and period, and check the prior 3 years in your IRS Online Account or through your CPA.

Pay the tax: or set up a payment plan so the failure-to-pay penalty stops growing.

Request relief: by phone, letter or Form 843. For penalties already paid, a refund claim is generally due within 3 years of filing or 2 years of payment, whichever is later.

Late 2026 through 2027: for 2025 annual or 2026 quarterly returns that still draw a penalty notice, request FTA; for eligible returns due on or after January 1, 2027, watch for the IRS AEP notice.

If denied: request Appeals review as explained in the notice or Publication 5.

How YCL can help

We pull IRS account transcripts, decide whether FTA, AEP or reasonable cause fits, call the IRS or prepare Form 843 and reasonable cause statements, and follow up until the IRS acts. See our penalty abatement service.

If the penalty comes from unreported foreign assets, foreign accounts or foreign company information returns, see our guide on penalty relief and catch-up filing for international information returns.

YCL Accounting & Consulting is a multi-state CPA firm serving clients across the U.S. in English and Chinese, led by co-founder Gloria (Chenchen) Liu, CPA. You can start with a free 15-minute consultation.

Sources

IRS: Penalty relief due to First Time Abate or other administrative waiver

IRS News Release IR-2026-83: IRS simplifies penalty relief, introduces automatic process for eligible taxpayers

Internal Revenue Manual 20.1.1, Introduction and Penalty Relief (incl. 20.1.1.3.3.2.1 First Time Abate)

IRS: Penalty relief for reasonable cause

IRS: About Form 843, Claim for Refund and Request for Abatement

IRS: Failure to file penalty

IRS: Failure to pay penalty

Last checked: November 4, 2026

This article is general tax information, not tax, legal or investment advice for any individual situation.