The IRS Makes the First Time Abatement Penalty Relief Automatic
In a significant shift designed to reduce taxpayer burden and improve fairness, the Internal Revenue Service (IRS) has announced that First Time Abatement (FTA) penalty relief will become automatic starting with the 2026 filing season. This change applies to penalties assessed on tax years beginning in 2025 and later, meaning many taxpayers who occasionally slip up on deadlines—for filing, paying, or depositing taxes—will no longer need to proactively request relief.
Previously, FTA was an administrative waiver that required taxpayers (or their representatives) to request it, typically by phone, letter, or Form 843 (Claim for Refund and Request for Abatement). While effective for those who knew about it and qualified, millions of eligible individuals—often lower-income taxpayers—missed out simply because they were unaware of the option or didn’t pursue it. The National Taxpayer Advocate (NTA) highlighted this issue for years, estimating that around 1 million taxpayers per year could benefit but often didn’t due to the manual request process. The IRS’s move to automate FTA addresses this directly, aligning with efforts to make the tax system more accessible and efficient.
What Is First Time Abatement (FTA)?
FTA is an administrative relief program that waives certain common penalties for taxpayers with a strong history of compliance. It rewards good behavior by forgiving penalties the first time they occur, recognizing that even compliant taxpayers can make occasional mistakes.
The penalties eligible for FTA include:
- Failure-to-File Penalty — Typically 5% per month (up to 25%) for late returns.
- Failure-to-Pay Penalty — Usually 0.5% per month (up to 25%) on unpaid taxes.
- Failure-to-Deposit Penalty — Applies to businesses or employers who miss payroll tax deposit deadlines.
FTA does not apply to all penalties (e.g., accuracy-related penalties or estimated tax penalties under IRC §§ 6654/6655 are generally excluded). It is a one-time benefit within a rolling three-year lookback period.
Qualification Criteria Remain the Same
To qualify for automatic FTA, taxpayers must meet the IRS’s existing “clean compliance history” requirements:
- No similar penalties (failure to file, pay, or deposit) assessed in the three tax years immediately preceding the current one.
- If penalties existed in those prior years, they must have been abated for reasons other than FTA (or the taxpayer had no prior filing requirement).
- The taxpayer must have filed (or been required to file) returns for those prior periods.
The IRS reviews compliance history systemically, and relief applies regardless of the penalty amount. For failure-to-pay penalties, full payment of the underlying tax may still be needed in some cases to fully abate the penalty (though partial relief can apply).
How the Automatic Process Works
Starting in 2026 (for 2025 tax returns filed during that season), the IRS will systematically check for FTA eligibility when assessing qualifying penalties. If criteria are met:
- The penalty will be waived or suppressed automatically.
- Eligible taxpayers will receive a notice (often described as a “lovely letter” rather than a demand) confirming the abatement—no scary penalty bill required.
- Refunds will issue for any penalties already paid that qualify.
This automation is expected to benefit roughly 1 million taxpayers annually, many of whom previously overlooked the relief. The change stems from IRS commitments to implement systemic FTA by January 1, 2026, as outlined in responses to Taxpayer Advocate Service recommendations.
Note that the IRS may apply FTA before considering reasonable cause relief in some cases. However, processes are being developed to allow taxpayers to substitute reasonable cause (if stronger facts support it) instead of using their one-time FTA slot.
What This Means for Taxpayers and Preparers
- This policy is taxpayer-friendly news, especially for individuals and small businesses who face occasional late filings or payments due to life events, oversight, or complexity. It reduces the need for time-consuming calls to the IRS Practitioner Priority Service or written abatement requests, streamlines compliance, and promotes voluntary adherence by removing barriers for first-time offenders.
The information presented here should not be construed as legal, tax, accounting, or valuation advice. No one should act on such information without appropriate professional advice and after a thorough examination of the particular situation.
