IRS letter help
IRS Penalty Relief: The Automatic Exemption and Reasonable Cause
The IRS can remove some penalties for filing late, paying late or depositing late. The main routes are now the Automatic Exemption from Penalty, for people with a clean history, and reasonable cause.
Reviewed by LaToya Clark-Thompson, FounderLast updated
Which penalties can be relieved
The penalties most often relieved are failure to file (for a late return), failure to pay (for tax paid late), and failure to deposit (for business payroll and similar deposits made late or not at all). These show up on balance notices such as the CP14. Relief removes the penalty, but the tax itself remains, and so does the interest on the tax.
The Automatic Exemption from Penalty
The IRS has introduced the Automatic Exemption from Penalty (AEP), which replaces the First-Time Abate policy. It is administrative relief for taxpayers with a record of timely filing and paying. For eligible returns, the failure-to-file, failure-to-pay and failure-to-deposit penalties are simply not assessed during processing, and the IRS sends a notice confirming that relief was granted. You do not need to ask for it.
- You generally qualify if you filed on time and paid any tax due for the prior three years, or for twelve consecutive quarters for quarterly returns
- It applies to eligible original returns going forward, including quarterly payroll returns
- Information returns, such as 1099s, are not eligible, and neither are returns filed only for specific transactions or infrequent events, such as estate and gift tax returns
- During the changeover from First-Time Abate, some people who qualify may still receive a penalty notice. If that happens, you can contact the IRS and ask for First-Time Abate
Reasonable cause
If you do not qualify for the automatic exemption, you can still ask for relief based on reasonable cause. The question is whether you used ordinary business care and prudence and still could not meet the obligation because of circumstances beyond your control. Situations the IRS considers include:
- Fire, casualty, natural disaster or other disturbance
- Serious illness, incapacity or death of the taxpayer or an immediate family member
- Inability to get records despite reasonable efforts
- System issues that delayed a timely electronic filing or payment
- Other facts showing you exercised reasonable care and fixed the problem promptly once you could
Not knowing the rules, a mistake, relying on someone else to file, or not having the money generally does not count on its own. A request is made by phone, by letter, or on Form 843, with an explanation and documents (a hospital record, an insurance claim, a timeline). The IRS reviews each request and tells you the result.
What relief does not do
Penalty relief does not remove the tax, and the IRS is explicit that you must still pay any tax and interest due, along with any penalties not eligible for relief. When a penalty is removed, the interest that had been charged on that penalty is reduced or removed with it. Relief is also the IRS’s decision. Nobody can promise it in advance.
How we help
We look at your account transcripts to see which penalties were charged, for which years, and whether your filing history fits the automatic exemption or First-Time Abate during the changeover. Where reasonable cause may apply, we help you assemble the timeline and the documents that show what happened. If returns are still missing, we prepare them first, because a late return keeps adding penalties; see back tax filing. For businesses with deposit penalties, our payroll services keep future deposits on schedule.
Making a penalty relief request to the IRS on your behalf is handled by the independent licensed CPA we work with, with our office coordinating. See tax resolution. Send the penalty notice, every page, through the secure client portal.
Frequently asked questions
What is the IRS Automatic Exemption from Penalty?
It is the IRS program replacing First-Time Abate. If you filed on time and paid any tax due for the prior three years, the IRS does not assess failure-to-file, failure-to-pay or failure-to-deposit penalties on an eligible original return, and sends a notice confirming the relief. No request is needed. Tax and interest are still owed.
Is First-Time Abate still available?
The IRS is phasing it out and replacing it with the Automatic Exemption from Penalty. During the transition, some qualifying taxpayers may still get penalty notices for eligible returns, and the IRS says they can contact it to request First-Time Abate. For returns outside the new program, reasonable cause remains available.
What counts as reasonable cause for IRS penalty relief?
Circumstances beyond your control that stopped you from filing or paying on time despite ordinary care, such as serious illness, a death in the family, a disaster, or being unable to get your records. You need to explain what happened, when, and how you acted once you could, with documents. Lack of funds or not knowing the rules usually is not enough alone.
Can the IRS remove interest as well as penalties?
Interest on the tax itself is generally charged by law and is not removed for reasonable cause. When a penalty is removed, though, the interest charged on that penalty is generally reduced with it. Interest can be reduced in narrow cases involving IRS errors or delays, but that is a separate request.
Not the question you had? The full tax FAQ covers more ground, and our client reviews say what the work is actually like.
Related pages
IRS payment plan options
The Simple Payment Plan, other installment agreements, short-term plans, hardship status and offers.
Learn moreCP14 notice
The first bill for a balance due. How to check the figure and pay or set up a plan by the date on the notice.
Learn moreCP501 notice
The first reminder after an unpaid bill. Still early, still fixable with a payment or a plan.
Learn moreHow to read an IRS letter
Where the notice number, tax year, amount and response date sit on the page, and what each means.
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