CP895(b): The IRS Granted Your Business Automatic Penalty Relief

What the notice actually says

CP895(b) 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." CP895(b) is that letter for a business (BMF) account.

CP895(b) 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.

CP895(b) vs. CP195B: what the source actually says

The governing authority for this notice, IRM Procedural Update SBSE-20-0626-0643 (June 17, 2026), names both business notices twice and never separates them. At ¶14, describing what Master File does when AEP is granted: "Issue a separate notice (CP95/CP95(SP) for IMF) and (CP195B/CP895B for BMF) explaining to the taxpayer that AEP was granted and no penalties were assessed." At ¶18, describing how a taxpayer can confirm AEP applied: "Taxpayers may also rely on the CP95, CP95(SP), CP195B, or CP895(b) notice they received when AEP was applied to their return." Both paragraphs group CP195B and CP895(b) as the two BMF (business) notices, on equal footing with each other, without stating what determines which one a given business receives.

This page does not invent a distinction to fill that gap. The IRS's Administrative penalty relief page, IR-2026-83 and Fact Sheet FS-2026-12 do not name CP895(b) or CP195B at all, let alone distinguish them. If you received CP895(b), it is one of the two notices the IRS sends a business when AEP is granted, and the published record does not say why your business got this one.

What actually triggered it — the compliance test

Regardless of which of the two business notices arrives, the underlying test is the same. Per ¶8 of the governing update, it requires the same return type to have been filed for each of the prior three years (or twelve consecutive quarters) — or IRS records to show there was no requirement to file it for that period — with no penalty other than the estimated tax penalty assessed for $1 or more in that window, or one assessed and later removed specifically for reasonable cause or an IRS error and not through AEP, First-Time Abate, or a tolerance waiver. Employment tax returns — Forms 940, 941, 943, 944, 945, and CT-1 — must also clear two further conditions: no four-or-more failure-to-deposit penalty waivers in the same window, and the current failure-to-deposit penalty was not caused by routing deposits to avoid the Electronic Federal Tax Payment System (EFTPS).

Meeting that test suppresses the Failure to File penalty (IRC §6651(a)(1), §6698(a)(1), or §6699(a)(1)), the Failure to Pay penalty (IRC §6651(a)(2) and (a)(3)), or the Failure to Deposit penalty (IRC §6656) before any of them is ever charged. For the full detail on eligible return types and the CT-1 exception, see CP195B.

What people mistake CP895(b) for

As covered above, the closest confusion is with CP195B — same relief, same account type, no stated distinction between them. The other business AEP notice section on that page covers the shared mechanics (the TC 971 Action Code 996 marker, what the relief does not cover, and the CT-1 exception) in full rather than repeating them here.

CP895(b) is also easy to mistake for the routine settlement notice issued alongside it, which covers any balance still due. CP895(b) only explains why a penalty was not part of that balance; it is not itself a bill.

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). The notice code itself, and the pairing with CP195B, comes only from 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 eligibility for AEP or another penalty-relief path directly, the Penalty Abatement Analyzer checks First-Time Abate and AEP together.

Common Questions