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." CP95 is that letter for an individual return.

There is no balance-due demand attached to this notice and no response window. 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, created by IRM Procedural Update SBSE-20-0626-0643 (June 17, 2026) as IRM 20.1.1.3.3.2.5. Per the standing rule for this authority: every mention of that subsection number carries the IPU number alongside it, because 20.1.1.3.3.2.5 does not yet appear in the IRM as published on IRS.gov — the IPU is the only place it is written down.

The test itself is straightforward: the same return type was filed on time for the prior three years (or the last twelve consecutive quarters for a quarterly filer), and no penalty — other than the estimated tax penalty — was assessed for $1 or more in that window, or one was assessed and later removed for reasonable cause or an IRS error rather than 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 fully replace First-Time Abate for returns due on or after January 1, 2027.

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 — that is the marker an online account transcript would show, 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 pulling 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 CP95 gets confused with

The nearest thing to CP95 is CP95(SP) — the identical notice, sent in Spanish rather than English, to individuals who requested Spanish-language IRS correspondence. The relief, the account marker, and everything else about it are the same; only the language differs.

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.

Common Questions