Penalty Abatement Analyzer

Two programs, similar tests, and a publication gap

IR-2026-83 (July 8, 2026) announced Automatic Exemption from Penalty: the IRS now suppresses the failure-to-file, failure-to-pay, and failure-to-deposit penalty assessment itself, automatically, for a taxpayer with three years of clean compliance history, requiring no request. Which mechanism governs a given return depends on the return's own tax year or quarter, not on preference — this page names three bands:

• Band A (tax year 2024 and earlier, and 2025 quarterly returns and earlier): First-Time Abate alone. You need not name it, but you must contact the IRS.
• Band B (tax year 2025, and 2026 quarterly returns due in 2026): the transition band, where both programs are live.
• Band C (original due dates on or after January 1, 2027, which includes a fourth-quarter 2026 Form 941): AEP only, for a return you file within three years of its original due date (¶(7)) — it replaces First-Time Abate, which no longer exists as a request path. IRS.gov's table keeps First-Time Abate for 2026 quarterly returns AEP did not consider; the update ends it for returns due on or after January 1, 2027.
• Returns AEP does not cover (Form 1041 and others not on the IRS list): First-Time Abate by request, as we read the update (it does not say so in terms), but not for returns the IRM excludes: those filed once or infrequently (such as Forms 706 and 709), Form 990, and the 1099 series (IRM 20.1.1.3.3.2.1 ¶(7)-(8)).

IRM Procedural Update sbse-20-0626-0643 (June 17, 2026) added IRM 20.1.1.3.3.2.5 (AEP itself) and 20.1.1.3.3.2.6 (a manual AEP grant when an established IRS error kept a Band B or C return out of AEP). The published IRM 20.1.1 includes neither yet and ends at 20.1.1.3.3.2.4. Cite the update by number, sbse-20-0626-0643, until publication catches up.

Worked example — the transition band

A failure-to-pay penalty applies to a 2025 individual return. The taxpayer timely filed the same return type in each of the prior three years and has no unreversed penalty in that lookback. Both eligibility gates pass, and whether AEP already applied is not yet known. The analyzer returns Band B, flagged ambiguous — the facts alone don't establish which outcome applies; the transcript does, not a Transaction Code (TC) 161, 271, or 167 alone (see the FAQ below on why):

• A CP95, CP95(SP), CP195B or CP895(b) notice shows AEP applied. An unreversed TC 971 AC 996 shows AEP or a prior FTA grant (update ¶(12)).
• If a penalty notice arrives instead, with none of those markers on the transcript: AEP did not fire for this return, which is an ordinary transition outcome — not by itself evidence the taxpayer failed the eligibility test. Request First-Time Abate manually: it still exists as a request path in this band and is the default remedy, ahead of the manual IRS-error grant below.

Relief and an unreversed penalty both use up the lookback

FTA and AEP both require a clean three-year history. A First-Time Abate grant for this period counts against both programs for three years (IRM 20.1.1.3.3.2.1 ¶(11); update ¶(12)). An AEP grant bars a second AEP grant for three years (¶(17)); the update does not say whether it also blocks a later First-Time Abate, so check the transcript. A penalty left unreversed also fails the First-Time Abate lookback, so declining relief now preserves nothing. The update describes no way to decline AEP. Check the penalty first: a wrong penalty comes off without spending the waiver (IRM 20.1.1.3).

If your history meets the First-Time Abate criteria, the IRS applies First-Time Abate first, even if your request argues reasonable cause (IRM 20.1.1.3.3.2.1 ¶(12)). Where First-Time Abate does not apply, reasonable cause costs no lookback and leaves the period compliant if no other penalty shows (update ¶(20) Note), but the IRS can deny it.

When only reasonable cause remains

This tool rates death, serious illness, or unavoidable absence (IRM 20.1.1.3.2.2.1) and fire, casualty, or natural disaster (.2.2.2) as carrying the most weight. Inability to obtain records (.2.2.3) rates weaker, and the IRM says reliance on a tax professional (.2.2.5) generally is not a basis for reasonable cause. Neither FTA nor AEP reaches accuracy-related penalties: IRC §6662 sits outside the three penalties both programs cover. There, reasonable cause (IRC §6664(c)) is one defense; also check substantial authority or disclosure (IRC §6662(d)(2)(B)) and written supervisory approval (IRC §6751(b)). Supply dates, names, and specifics for any factor you argue.

Beyond FTA and AEP

• AEP-eligible Band B or C return with an assessment: passing the gates does not show an IRS error. The IRS grants AEP manually only when an IRS error kept a qualified return from receiving it, so name the error and ask for the manual AEP grant (IRM 20.1.1.3.3.2.6). In Band B, also ask for First-Time Abate; it needs no error finding. If neither fits, request reasonable cause (IRM 20.1.1.3.2).
• The return sits in the transition band and the transcript does not show whether AEP already applied.
• The penalty is an accuracy-related penalty under IRC §6662, which neither FTA nor AEP reaches.
• A large penalty is at stake and the period may hold an IRS error worth fixing first.

Common Questions