CP195B: The IRS Granted Your Business Automatic Penalty Relief

What the notice actually says

CP195B tells you the IRS reviewed the business return named on the notice, confirmed it met the compliance history that Automatic Exemption from Penalty (AEP) requires, and did not assess a Failure to File, Failure to Pay, or Failure to Deposit penalty as a result. The IRS's Administrative penalty relief page describes the underlying letter this way: "You'll know if you got this relief because you'll receive a letter explaining that even though you filed late, paid the tax late, or didn't make the deposit timely, the applicable penalties were not assessed." CP195B is that letter for a business (BMF) account.

CP195B carries no balance-due demand on its own. The IRS says AEP needs no action from the taxpayer. If your own letter asks you to do something, follow the letter. A remaining balance — the tax itself, interest, or a penalty AEP does not reach — would appear on a separate settlement notice, not on this one.

What actually triggered it — the compliance test, and the two extra business conditions

CP195B exists because of Automatic Exemption from Penalty, which IRM Procedural Update SBSE-20-0626-0643 (June 17, 2026) created as IRM 20.1.1.3.3.2.5 — a subsection that does not yet appear in the published IRM on IRS.gov, which is why every mention of it here carries the update number (SBSE-20-0626-0643) alongside it.

The baseline test is the same one an individual return has to clear. It has two parts (¶8 of the update). First, the business filed the same return type for each of the prior three years (or the last twelve consecutive quarters), or IRS records show no filing was required for that period. Second, the IRS assessed no penalty of $1 or more in that window, except the estimated tax penalty, or it removed one only for reasonable cause or IRS error, not through AEP, First-Time Abate, or tolerance.

Employment tax returns — Forms 940, 941, 943, 944, 945, and CT-1 — have to clear two additional conditions beyond that: the return has not received four or more failure-to-deposit penalty waivers in the same three-year (or twelve-quarter) window, and the failure-to-deposit penalty on the current return was not caused by routing deposits to avoid the Electronic Federal Tax Payment System (EFTPS). Both conditions apply only to employment tax returns, not to income tax returns like Form 1120 or 1120-S.

The update lists Forms 1065, 1120, 1120-S, 940, 941, 943, 944, 945, and CT-1 as eligible business return types; IRS.gov's administrative penalty relief page omits Form 1120-S. One caveat the source flags on its own: Form CT-1 is eligible but is not programmed to receive AEP automatically at return posting — a CT-1 filer has to contact the IRS for manual consideration, the same manual-grant path that applies when an eligible return was blocked by an IRS error.

What this notice does not cover — and the account marker behind it

The relief behind CP195B covers exactly three things: filing late, paying late, and depositing late. It does not touch the underlying tax, and it does not touch interest, which keeps accruing on any unpaid balance regardless. It also does not reach any other penalty type — the source states plainly that "other penalty types may be assessed when applicable" even after AEP is granted.

Internally, a granted AEP posts as an unreversed TC 971 with Action Code 996 — one entry per suppressed penalty type on a business account, each recording that penalty's type and amount. An unreversed TC 971 action code 996 shows AEP or a prior First-Time Abate grant (IRM Procedural Update sbse-20-0626-0643 ¶(12)), and it is what actually blocks Failure to File, Failure to Pay, and Failure to Deposit assessments on that account going forward. The notice itself is the IRS's own stated proof the relief already applied; checking a transcript is an optional extra step, not something you need to do to trust CP195B.

Once that TC 971 A/C 996 posts, the return is not eligible for AEP again until three more consecutive years (or twelve consecutive quarters) of on-time filing and paying are established.

What people mistake CP195B for

The closest notice to CP195B is CP895(b) — both go to business (BMF) accounts for the same reason, and the source governing both, IRM Procedural Update SBSE-20-0626-0643, lists them together as "CP195B/CP895B for BMF" without ever separately explaining what distinguishes one from the other. This page does not guess at a difference the source does not state — see the CP895(b) page for that finding in full.

CP195B is also easy to mistake for the routine settlement notice that comes with it. The source states the IRS "Issue[s] the normal routine settlement notice" alongside CP195B, and that settlement notice "will exclude any FTF, FTP, and/or FTD penalty amount in the balance due." If your business still shows a balance — the tax itself, or a penalty AEP does not reach — that comes from the settlement notice, not from CP195B.

For an individual return, the equivalent notices are CP95 and CP95(SP) — CP195B and CP895(b) go to business accounts only.

Where this rule comes from

AEP was announced in IRS News Release IR-2026-83 (July 8, 2026) and detailed in IRS Fact Sheet FS-2026-12 (July 2026). Neither document, nor the IRS's Administrative penalty relief page, names CP195B by number — the notice code itself comes only from the governing procedural update, IRM Procedural Update SBSE-20-0626-0643, which added IRM 20.1.1.3.3.2.5.

If your business's return should have qualified for AEP but a penalty was charged anyway because of an IRS processing error, see What Happens if You Qualified for AEP but an IRS Error Blocked It. To check whether an account already qualifies for AEP or another penalty-relief path, the Penalty Abatement Analyzer checks First-Time Abate and AEP eligibility together.

Common Questions