What Is First-Time Penalty Abatement and Who Qualifies?

What Is First-Time Penalty Abatement and Who Qualifies?

First-time penalty abatement, which the IRS calls First Time Abate or FTA, is administrative relief that removes failure to file, failure to pay, and failure to deposit penalties for a single tax period when you have three prior years of clean compliance. It is not based on your excuse. It is based on your record.

If you have filed on time for three years and slipped once, the penalty is probably removable.

The part most people miss is that you usually have to ask. Or you did, until this summer.

The Three Tests

The IRS looks at your account, not your story. There are three things it checks.

1. The same return type was filed on time for the prior three years. For quarterly filers, that is 12 consecutive quarters. A 1040 history does not qualify a late 941.
2. No penalty was assessed in that window, with one exception. The estimated tax penalty does not disqualify you. A penalty that was assessed and later removed for reasonable cause or IRS error does not disqualify you either.
3. You are current on filing and payment, or you have an arrangement in place such as an installment agreement.

Businesses have two extra conditions: the failure to deposit penalty cannot have been waived four or more times in the prior three years, and it cannot have been charged for avoiding the Electronic Federal Tax Payment System.

What It Covers, and What It Does Not

This is the table worth screenshotting.

Penalty	Eligible for relief?
Failure to file, IRC 6651(a)(1)	Yes
Failure to file, partnership and S corp returns, IRC 6698 and 6699	Yes
Failure to pay, IRC 6651(a)(2) and (a)(3)	Yes
Failure to deposit, IRC 6656	Yes
Accuracy-related penalty	No
Fraud penalties	No
Estimated tax penalty	No
Daily Delinquency Penalty for exempt organizations	No

Two categories also fall outside it regardless of penalty type:

• Event-based returns that you file once or infrequently rather than every year.
• Information reporting that depends on another filing.

Relief is available regardless of the dollar amount of the penalty. There is no floor and no ceiling.

The Change: It Is Becoming Automatic

Here is the part that is new, and it is the reason to read the notice you get rather than filing it away.

The IRS is transitioning FTA to a program called Automatic Exemption from Penalty, or AEP, starting in summer 2026. Under AEP, if your compliance history is clean, the penalty is never assessed in the first place.

Feature	First Time Abate	Automatic Exemption from Penalty
How relief happens	You request it	Applied automatically
Penalty assessment	Assessed first, removed later	Never assessed
Taxpayer action	Required	None
Failure to pay penalty	Can keep accruing until the tax is paid	Not assessed on the unpaid tax
Applies to	2025 tax year and 2026 quarterly returns, plus all prior periods	2025 tax year and 2026 quarterly returns, and forward

AEP is being applied when an original return finishes processing, on the 1040, 1065 and 1120 series, the 940, 941, 943, 944 and 945 payroll series, and Form CT-1. You should receive a letter telling you the penalty was not assessed because of your compliance history.

If you get a notice with a penalty on it and you believe you should have qualified, that is a phone call, not a lost cause.

Interest Is a Separate Question

Removing a penalty does not remove the interest on the tax you owe.

The IRS charges interest on penalties, and when a penalty is reduced or removed, the interest attached to that penalty comes off with it automatically. Interest on the underlying unpaid tax keeps running until the balance is paid.

So a successful abatement on a $4,000 balance with a $400 penalty saves you the $400 and the interest on the $400. It does not touch the interest on the $4,000.

FTA Versus Reasonable Cause, and Why the Order Matters

Reasonable cause relief is the other path. It is based on facts: serious illness, a natural disaster, records destroyed, circumstances outside your control.

The two are not interchangeable, and using the easy one first can cost you.

• FTA is a one-per-window resource. Use it on a small penalty this year and it is not available for a larger one next year, because the year you used it is no longer clean.
• Reasonable cause does not consume it. A penalty removed for reasonable cause still leaves your compliance history clean for FTA purposes.
• The sequencing question is worth asking out loud. If you have a genuine reasonable cause argument, making that argument first and holding FTA in reserve is often the better play.

That is the kind of call a tax professional makes for a living, and it is the main reason to bring one in on a penalty that is more than a nuisance.

What to Do If You Do Not Qualify

Reasonable cause is the fallback, and it is a written argument with documentation rather than a form you check a box on. If the IRS declines, you can appeal.

For a balance you cannot pay, an installment agreement keeps you inside the payment compliance test, which matters for any future relief.

Sam's List lists vetted CPAs and tax professionals who handle IRS notices and penalty relief, with client reviews you can read before you book a call.

Frequently Asked Questions

How many times can I use first-time penalty abatement?

More than once in a lifetime. The test is a clean compliance history for the three years immediately before the period you are asking about, so eligibility renews as older penalties age out of that window. It is not a once-ever benefit, despite the name.

Do I need to write a reasonable cause letter to get FTA?

No. Under FTA you do not have to name the relief you want or send supporting documents. You call the number on your notice, or send a written statement or Form 843 to the address in the Form 843 instructions, and the IRS reviews your account to see whether you qualify.

Does an extension count as filing on time?

Yes. A return filed by the extended due date, with a valid extension in place, counts as timely for the compliance history test. An extension to file is still not an extension to pay, so a late payment in one of those three years can create a penalty that breaks the streak.

Will AEP apply to a late return I filed for 2023?

No. The automatic program starts with 2025 tax year returns and 2026 quarterly returns. Earlier periods still go through the request-based FTA process, which remains available for prior years. If you have an old penalty sitting on an account, it is still worth asking about.

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About the author: Kimberly Green is the cofounder of Sam's List, where business owners and high earners find vetted CPAs, financial advisors, and fractional CFOs. She's met one-on-one with 400+ financial professionals and writes from the real data behind thousands of client-advisor matches. Ask her anything about finding an accountant - she's heard it all, including the questions people are afraid to ask.