CP95: The IRS Granted You Automatic Penalty Relief — No Response Needed

What the notice actually says

CP95 tells you the IRS reviewed the return named on the notice, confirmed you met the compliance history that Automatic Exemption from Penalty (AEP) requires, and did not assess a Failure to File or Failure to Pay penalty on it as a result — even though the return would otherwise have triggered one. The IRS's own Administrative penalty relief page describes the underlying letter in plain terms: "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 due to your history of timely compliance." CP95 is that letter for an individual return.

There is no balance-due demand attached to this notice. The IRS says AEP needs no action from the taxpayer. If your own letter asks you to do something, follow the letter. If your account also carries an unrelated balance — the tax itself, interest, or a penalty type AEP does not cover — that will show up on its own separate notice, not on this one.

What actually triggered it — the compliance test behind AEP

CP95 exists because of a program called 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. This page names the Procedural Update next to that subsection number because 20.1.1.3.3.2.5 does not yet appear in the IRM as published on IRS.gov; the Procedural Update is the only place that text exists.

The test has two parts (¶8; on a joint return both spouses must pass, ¶10). First, you filed the same return type for each of the prior three years (or twelve quarters), or IRS records show no filing was required. 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. Meet that, and the IRS's own system suppresses the Failure to File penalty (IRC §6651(a)(1)) or the Failure to Pay penalty (IRC §6651(a)(2) and (a)(3)) — the two penalty types that apply to an individual return — before either is ever charged. You never see the bill in the first place.

AEP began rolling out in summer 2026 with 2025 tax year and 2026 quarterly returns, per IR-2026-83, the IRS's own announcement of the program (July 8, 2026). It is set to replace First-Time Abate for returns due on or after January 1, 2027, but only for the specific return types AEP covers — the same failure-to-file, failure-to-pay, and failure-to-deposit penalties FTA has always addressed, just not on every return type FTA currently handles.

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

The penalty relief behind CP95 covers exactly two things for an individual return: filing late and paying late. It does not touch the tax itself, and it does not touch interest — interest keeps accruing on any unpaid balance the whole time. It also does not reach any other penalty type your account might carry; the source is explicit that "other penalty types may be assessed when applicable" even after this relief is granted.

Internally, a granted AEP posts as an unreversed TC 971 with Action Code 996 on your account. 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 the Failure to File and Failure to Pay penalties from being assessed on that specific return going forward. You do not need to look this up to trust CP95, though: the notice itself is the IRS's own stated proof that the relief already applied, and reviewing a transcript is an optional double-check, not a requirement.

One more detail worth knowing if you are keeping track for next year: once that TC 971 A/C 996 posts, the IRS will not consider that same return eligible for AEP again until three more consecutive years (or twelve consecutive quarters) of on-time compliance are established afterward.

What people mistake CP95 for

The nearest thing to CP95 is CP95(SP) — the Spanish-language companion notice, which the IRS update lists beside CP95. The relief and the account marker are the same.

CP95 is also easy to mistake for the routine settlement notice that accompanies it. When AEP applies, the source states the IRS "Issue[s] the normal routine settlement notice" alongside CP95 — and that settlement notice "will exclude any FTF, FTP, and/or FTD penalty amount in the balance due." If your return still shows a balance (the tax itself, or a penalty type AEP does not cover), that comes from the settlement notice, not from CP95 — CP95 only explains why a penalty you might have expected is not part of that balance.

For a business return, the equivalent notices are CP195B and CP895(b) — CP95 and CP95(SP) go to individual (Form 1040-series) accounts only.

Where this rule comes from

AEP was announced in IRS News Release IR-2026-83 (July 8, 2026) and detailed further in IRS Fact Sheet FS-2026-12 (July 2026). Neither of those, nor the IRS's Administrative penalty relief page, names CP95 by number — the notice code itself comes only from the governing procedural update, IRM Procedural Update SBSE-20-0626-0643 (June 17, 2026), which added IRM 20.1.1.3.3.2.5.

If you believe your 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 your own account already qualifies for AEP or another penalty-relief path, the Penalty Abatement Analyzer checks First-Time Abate and AEP eligibility together.

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