The IRS is retiring the penalty break that taxpayers with a clean record have had to ask for by phone or by form. For returns originally due on or after January 1, 2027, First Time Abate is replaced by an automatic program that keeps certain late-filing and late-payment penalties from being charged at all.
The new system, called the Automatic Exemption from Penalty, has already started for some 2025 returns. The January date is when it fully takes over, and the people it helps most are those who slip once after years of filing and paying on time.
How the Automatic Exemption from Penalty works
The IRS announced the change in news release IR-2026-83 on July 8. Under the new program, when an eligible return is processed, the IRS simply does not assess the failure-to-file, failure-to-pay or failure-to-deposit penalty. Nobody has to call or send a request. The IRS mails a notice confirming that relief was applied.
IRS Chief Executive Officer Frank J. Bisignano said in the release that taxpayers who historically pay on time should not have to make a formal request for relief.
The program applies to eligible original returns beginning with tax year 2025, to 2026 quarterly returns and to later periods. The agency followed up with Tax Tip 2026-59 on July 30, which restates that the automatic exemption replaces First Time Abate for eligible returns with original due dates on or after January 1, 2027.
Two kinds of IRS letters in the switchover: A notice decoder and an IRS notice log help sort out whether a letter confirms relief or shows a penalty that should not be there, which is the question many filers will face during the transition. Both are part of The IRS Refund Recovery Kit.
Who qualifies, and which returns are left out
Eligibility turns on history. A taxpayer must have filed on time and paid any tax due in the previous three years, or for 12 consecutive quarters in the case of quarterly returns.
The IRS administrative penalty relief page lists the return types covered: individual Form 1040, partnership Form 1065, corporate Form 1120, and the employment tax returns Forms 940, 941, 943, 944 and 945, plus Form CT-1. Information returns are excluded, as are returns filed only because of a one-time event, such as Form 706 for estate tax and Form 709 for gift tax.
What changes from First Time Abate
First Time Abate, which the IRS calls its most common form of administrative penalty relief, has always worked after the fact. The penalty is assessed first and removed later, and only if the taxpayer asks, by calling the number on the notice or by sending a written statement or Form 843.
Under the automatic exemption, the penalty is never assessed. The IRS comparison table also says that for eligible returns, the failure-to-pay penalty does not keep building on unpaid tax, while under First Time Abate it can continue to accrue until the balance is paid.
Those penalties add up quickly. According to the IRS failure-to-file page, the charge is 5% of the unpaid tax for each month or part of a month a return is late, up to 25%. For a return due after December 31, 2025, that is more than 60 days late, the minimum is $525 or 100% of the tax owed, whichever is less. The failure-to-pay penalty adds 0.5% a month, also capped at 25%.
The transition notices to watch for
The handoff is not seamless. The IRS says that while First Time Abate is being phased out, some qualifying taxpayers may still receive penalty notices on eligible 2025 returns and 2026 quarterly returns. Anyone who believes they qualify can contact the IRS and request First Time Abate on those periods.
When a penalty is reduced or removed, the IRS also automatically reduces or removes the interest charged on it.
What the automatic exemption does not erase
The relief covers penalties only. Taxpayers still owe the tax itself, the interest on it and any penalty outside the program. Someone whose filing history disqualifies them can still ask for penalty relief based on reasonable cause, and the IRS will review the request and send its decision.
The IRS points taxpayers who cannot resolve a penalty on their own to the Taxpayer Advocate Service and, for those who qualify, Low Income Taxpayer Clinics.
Penalty notices during the changeover
Until First Time Abate is fully replaced, a filer with a clean record may receive either a letter confirming automatic relief or a penalty notice that still has to be challenged. Telling the two apart, and keeping track of which periods were requested by phone, is the part the IRS leaves to the taxpayer.
The IRS Refund Recovery Kit includes a refund status tracker spreadsheet and the 3-year refund deadline, for following a return and any related IRS letters from filing to resolution.
Open the tracker in The IRS Refund Recovery Kit.
This article was created with AI assistance and reviewed for accuracy against IRS news release IR-2026-83, Tax Tip 2026-59 and current IRS pages on administrative penalty relief and filing and payment penalties.
Julian Harrow specializes in taxation, IRS rules, and compliance strategy. His work helps readers navigate complex tax codes, deadlines, and reporting requirements while identifying opportunities for efficiency and risk reduction. At The Daily Overview, Julian breaks down tax-related topics with precision and clarity, making a traditionally dense subject easier to understand.
