First-time penalty abatement: how to ask the IRS to remove business tax penalties

If the IRS has charged your business a late-filing or late-payment penalty and you have otherwise filed and paid on time, you may be able to have that penalty removed under an administrative waiver the IRS calls first-time abatement, and the IRS is phasing it out in favor of a relief that applies automatically, starting with returns for the 2025 tax year.

First-time abatement, often shortened to FTA, removes failure-to-file, failure-to-pay, and failure-to-deposit penalties for taxpayers who had a clean compliance record over the prior three years. You request it by calling the number on your IRS notice, sending a short written statement, or filing Form 843, and you do not need to prove hardship or name the program, because the IRS reviews your account history and applies the waiver if you qualify. Interest charged on a penalty that is removed is removed along with it. For eligible 2025 tax year returns and 2026 quarterly returns, a new relief called Automatic Exemption from Penalty means the IRS may never assess the penalty at all, and for taxpayers who do not qualify for either, a request based on reasonable cause is still available.

First-time abatement covers the penalties that businesses hit most often

The waiver applies to three families of penalties. The first is the failure-to-file penalty, which the IRS charges at 5% of the unpaid tax for each month or part of a month a return is late, up to 25%. Partnerships and S corporations face a separate late-filing penalty that is not based on tax owed, which for returns due in 2026 is $255 per partner or shareholder for each month or part of a month the return is late, up to 12 months, and that charge applies even when the business owes no income tax. Separately, a tax-based late return filed more than 60 days after its due date carries a minimum penalty of the lesser of $525 or the tax due for returns required to be filed in 2026, which is not a cap on or substitute for the per-owner penalty. The second is the failure-to-pay penalty, charged at 0.5% of the unpaid tax each month up to 25%. The third is the failure-to-deposit penalty, which applies to payroll and other taxes that must be deposited on a schedule.

The IRS lists the specific code sections that qualify for relief: section 6651 for ordinary late filing and late payment, section 6698 for partnership returns, section 6699 for S corporation returns, and section 6656 for late deposits. That matters for owners of multi-member LLCs and S corporations, because the per-owner penalty can reach thousands of dollars even when the business owes no tax, and it is eligible for first-time abatement along with the better-known penalties. A sole proprietor or single-member LLC owner who files Schedule C is covered as well, because the penalties land on the personal Form 1040.

The waiver does not cover everything. It does not apply to accuracy-related penalties for understating income, to the daily delinquency penalty, which the IRS charges mainly on certain exempt organization filings, to returns that are filed once or only occasionally, or to information reporting that depends on another filing. It also does not remove the underlying tax, only the penalty, so you still owe the tax and the interest on it.

Your record for the prior three years decides whether you qualify

To qualify, you need a timely compliance history, which the IRS defines as having filed the same type of return on time for the prior three years, or not having been required to file it. You must also have had no penalty on that return type over those three years, apart from the estimated tax penalty, or any penalty you did have must have been removed later for reasonable cause or because of an IRS error. If the only prior penalty on your record was removed under first-time abatement itself, it still counts against you, which is why the waiver works once and then not again until another clean three years have passed.

Businesses face two additional conditions that apply to deposit penalties. The IRS must not have waived a failure-to-deposit penalty four or more times during the prior three years, and the deposit penalty cannot have been charged for avoiding the electronic payment system.

In practice the IRS also looks at your current compliance, so if any required returns are still unfiled, filing them before you ask is the most useful thing you can do. A request that arrives while other returns are missing tends to stall or be denied, and the missing returns are generating their own penalties in the meantime.

The IRS is replacing first-time abatement with an automatic exemption

The IRS's penalty relief page, last updated in October 2026, describes first-time abatement as transitioning to a new relief called Automatic Exemption from Penalty, or AEP, which the IRS says begins in summer 2026. Under AEP, if you file or pay late in the current year but you filed and paid on time in each of the prior three years, or over 12 consecutive quarters for quarterly filers, the IRS does not assess the penalty at all. You do not have to call or write, and you will receive a letter explaining that the penalty was not charged because of your history of timely compliance.

AEP applies to 2025 tax year returns and later, and to 2026 quarterly returns and later. The return series the IRS lists for AEP are Forms 1040, 1065, and 1120, and Forms 940, 941, 943, 944, and 945, along with Form CT-1. Form 1120-S, the S corporation return, is not named on that list, so an S corporation that receives a late-filing penalty should check its notice and be prepared to request relief under first-time abatement, which the IRS page says covers S corporation late-filing penalties under section 6699.

The difference in practice is timing. Under first-time abatement the IRS assesses the penalty first and removes it later, and the failure-to-pay penalty can keep accruing until the tax is paid in full. Under AEP the penalty is never assessed and the failure-to-pay penalty does not accrue on the unpaid tax. First-time abatement continues to apply to earlier tax years and to any current-period return that AEP does not consider, which means many owners dealing with a penalty on a 2024 return or earlier will still be making a request.

If you receive a notice showing an assessed penalty on a return you believe qualified for AEP, the IRS says to contact it, so a penalty notice for a 2025 return from a business with a clean record is worth a phone call even though no request should have been necessary.

How to request first-time abatement

You can ask for relief in two ways, and the IRS accepts either one. You can call the number printed on your notice or letter, or you can send a written statement or Form 843, Claim for Refund and Request for Abatement, to the address in the Form 843 instructions. You do not need to say you are requesting first-time abatement by name or attach supporting documents, because the IRS reviews your account to see whether you meet the requirements.

A phone call is usually faster when the line is not backed up, and the IRS warns of long wait times, so a letter is a reasonable alternative that leaves a record. Whichever you choose, have the following in front of you: the name and EIN or Social Security number on the account, the notice number and date, the tax period and return type, and the amount of each penalty you are asking to have removed. If you want someone else to make the request for you, Form 2848 authorizes an eligible representative to speak for you, while Form 8821 only lets someone see your account information, and our guide to Form 8821 versus Form 2848 explains the difference.

If the IRS grants the request, it adjusts the account and sends a notice, and it removes the interest that was charged on the penalty. If it denies the request, it explains the decision, a written denial can generally be appealed to the IRS Independent Office of Appeals within 30 days of the rejection letter, and you can ask for reasonable cause relief. If your penalty is on a 2025 return, ask the IRS to check whether the automatic exemption should have applied before treating a first-time abatement request as your only option.

Pay what you owe while the request is pending

Abatement removes penalties and the interest on them, and the tax itself is still due. Under first-time abatement the failure-to-pay penalty can continue to accrue until the tax is fully paid, so paying the balance, or setting up a payment plan if you cannot pay it all at once, keeps the amount the IRS has to remove from growing. Paying the tax before you ask also removes any argument that you are not in current compliance. Interest on the unpaid tax keeps running until the balance is paid in full, whichever relief applies.

If you already paid a penalty and want it back, Form 843 is also the way to request a refund. There are time limits on refund claims, generally three years from the date you filed the return or two years from the date you paid, whichever is later, so do not wait if the penalty has already been collected.

If you do not qualify, ask for reasonable cause relief

First-time abatement is the easiest route, but it is not the only one. If you have a penalty history or your situation falls outside the waiver, you can ask the IRS to remove the penalty because you had reasonable cause for the problem. The IRS looks at whether you used ordinary business care and prudence and still could not meet your obligation, and circumstances that commonly qualify include a serious illness or death in the family, a fire or natural disaster, and an inability to get the records you needed despite trying. The request needs facts and dates, and where possible supporting documents, which makes it more work than first-time abatement but available to taxpayers with a less clean record.

If you cannot resolve a penalty on your own, the IRS points taxpayers to the Taxpayer Advocate Service, an independent organization within the IRS, and to Low Income Taxpayer Clinics for those who qualify.

Mistakes that get abatement requests denied

Missing returns. The request is judged against your whole account, and unfiled returns from other years or other entities are the most common reason a clean-looking request fails.

Asking for the wrong penalty. The waiver covers failure-to-file, failure-to-pay, and failure-to-deposit penalties and not accuracy-related penalties, so listing every charge on a notice as eligible can slow the response.

A recent prior penalty. A penalty in the last three years on the same return type, including one that was removed under first-time abatement, ends eligibility for now, and checking your transcript before you call avoids a wasted request.

Missing the AEP opportunity. A business with a clean record that receives a penalty on a 2025 return should not have been assessed at all, and the better move is to point that out rather than file a request as though AEP did not exist.

Waiting too long. Penalties and interest keep building, and refund claims have deadlines, so a quick request is almost always better than a perfect one.

Where Inkle fits

If you would rather not handle the call yourself, Inkle's tax team can review an IRS notice, check whether the penalty qualifies for relief, and prepare the request, and our bookkeepers help keep returns and deposits on time so the penalty does not arise in the first place. Inkle handles bookkeeping and tax for owner-operated businesses across the US.

See how it works or book a demo to talk through what your business needs.

Frequently asked questions

What is first-time penalty abatement?

It is an IRS administrative waiver that removes failure-to-file, failure-to-pay, and failure-to-deposit penalties for taxpayers who filed and paid on time for the prior three years. You request it by phone, letter, or Form 843, and you do not need to name the program or prove hardship.

Does first-time abatement remove interest?

The IRS removes the interest charged on a penalty when the penalty itself is removed, but it does not remove interest on the unpaid tax. You still owe the tax and the interest that accrued on it.

Can I use first-time abatement more than once?

Not within the same three-year window. Because eligibility depends on having no penalties on the same return type for the prior three years, a penalty that was removed under first-time abatement counts against you until three clean years have passed.

Does first-time abatement apply to S corporation and partnership penalties?

Yes. The IRS lists the partnership late-filing penalty under section 6698 and the S corporation late-filing penalty under section 6699 among the penalties eligible for relief. These per-owner penalties are $255 per partner or shareholder per month for returns due in 2026.

What is the Automatic Exemption from Penalty?

It is a new IRS relief that replaces first-time abatement for 2025 tax year returns, 2026 quarterly returns, and later periods. If you file or pay late but filed and paid on time for the prior three years, the IRS does not assess the penalty, and you do not have to ask.

What if the IRS denies my request?

Ask for relief based on reasonable cause, which requires you to show you used ordinary business care and prudence, and keep in mind that a written denial can generally be appealed within 30 days of the rejection letter. You can also contact the Taxpayer Advocate Service if you cannot resolve the penalty on your own.