Is the IRS Getting Rid of First Time Penalty Abatement?
First time penalty abatement has been the IRS's best-kept secret for years: a free pass on one late filing or late payment if your record was clean. Now the IRS is replacing it with something more automatic, and the change matters most for people who are behind. Here is what changes and when.
The short answer: First time abatement is being phased out. In July 2026 the IRS announced Automatic Exemption from Penalty, or AEP. Instead of charging a late-filing or late-payment penalty and making you ask for it back, the IRS will not charge it at all if your recent record is clean. AEP replaces first time abatement for returns due on or after January 1, 2027.
London's Tax Services in White Plains, NY helps Westchester and NYC clients catch up on unfiled returns and back taxes. Book a free 15-minute call if the change affects you.
What changes with AEP
| First Time Abate (old) | Automatic Exemption from Penalty (new) | |
|---|---|---|
| How it works | Penalty is charged, then you call or write to ask for it to be removed | Penalty is never charged if you qualify |
| Do you have to ask? | Yes | No |
| Which returns | 2024 returns and earlier, plus eligible returns processed during the transition | Phasing in during 2026, then all eligible returns due on or after 01/01/2027 |
| Removes the tax you owe? | No | No |
| Removes interest? | No | No |
Who qualifies
The relief is for people and businesses with a clean recent history. In general that means:
- No significant penalties in the prior three years (quarterly filers are measured over 12 clean quarters)
- All required returns for those years are filed
- Any tax due is paid, or you are on a payment plan
If you have unfiled years, you do not get the automatic break until those returns are in. That is the main reason to catch up on back taxes now, before the 2027 filing season.
What AEP does not do
- It does not reduce the tax you owe.
- It does not stop interest from running on unpaid tax.
- It does not cover the estimated tax penalty.
- It is federal only. New York State penalties and payment plans are handled separately by the NYS Department of Taxation and Finance.
- Some returns are excluded, such as estate and gift tax returns (Forms 706 and 709).
What to do if you already have a penalty notice
During the transition, you can still ask the IRS for first time abatement on eligible older penalties by phone or with Form 843. If you do not qualify, reasonable cause relief may still be possible (illness, disaster, or records outside your control). If you cannot pay the balance, see our guide to IRS and New York State payment plans. If you got a bill in the mail, start with what to do about a CP14 notice.
Behind on filing? Start here
- Gather your IRS wage and income transcripts for each missing year (free at irs.gov).
- File the oldest unfiled year first.
- Set up payment plans with the IRS and New York State if you owe.
- Stay current from here, so the automatic relief protects you next time.
What we tell our clients
The clean-history test is the whole game. Unfiled years or an unpaid balance can cost you the automatic break right when you need it most. Catching up before the 2027 filing season is cheap insurance, and it usually costs less than one year of penalties.
Need help catching up?
We prepare past-due returns, request penalty relief and set up payment plans for clients across Westchester County and NYC, and we quote a flat fee before starting. Book a free 15-minute call or call (646) 917-7714. London's Tax Services, 75 South Broadway, 4th Floor, White Plains, NY 10601.
Frequently asked questions
Do I still need to ask for first time penalty abatement in 2026?
For penalties on 2024 and earlier returns, yes, you still request it by phone or with Form 843. As AEP phases in, eligible penalties are simply never charged, with no request needed.
Does automatic penalty relief remove interest?
No. AEP stops certain penalties from being charged. The tax you owe and the interest on it still apply, so paying sooner keeps the cost down.
Can I get automatic penalty relief if I have unfiled returns?
Usually not. The relief depends on a clean filing history, so missing returns can disqualify you. File the missing years first.
Does New York State have automatic penalty relief too?
AEP is an IRS program only. New York State penalties are handled by the NYS Department of Taxation and Finance under its own rules.
Who can help me with IRS back taxes in White Plains, NY?
London's Tax Services at 75 South Broadway in White Plains prepares past-due returns, requests penalty relief and sets up IRS and New York State payment plans for Westchester and NYC clients.