Automatic First-Time Penalty Abatement in 2026: What’s New

The IRS has modified the way it handles First-Time Penalty Abatement in 2026, and tax resolution pros need to be ready. For the first time since the FTA was modified in 2001, eligible taxpayers will receive the abatement automatically, without having to call, write, or file anything to request it. National Taxpayer Advocate Erin Collins announced the shift at the AICPA National Tax Conference in November 2025, and it now applies to returns filed in 2026.

For taxpayers, this removes a barrier that costs many of them money. For tax professionals, it changes the workflow in ways worth understanding before penalty notices start moving through your clients’ accounts.

Automatic First Time Penalty Abatement in 2026 at a Glance

What Changed

Starting with 2025 tax returns filed in 2026, the IRS will systematically check for FTA eligibility when it assesses a qualifying penalty, and automatically reverse that penalty when the taxpayer qualifies. The automatic relief applies to the three penalties practitioners encounter most often in collection work:

• Failure to File (FTF)
• Failure to Pay (FTP)
• Failure to Deposit (FTD) for business taxpayers with employment tax obligations

Previously, this was an administrative waiver someone had to request, typically by phone to the Practitioner Priority Service, by written correspondence, or on Form 843. The relief worked for those who knew to ask, but most taxpayers did not. Speaking at the AICPA conference, Collins estimated that roughly one million taxpayers a year, most of them lower-income, qualify for FTA but never request it because they do not know it exists (Journal of Accountancy).

Automating the check closes that gap. When the system identifies a clean compliance history, the qualifying penalty is suppressed or reversed, and the taxpayer receives a notice confirming the abatement rather than a bill.

What Stays the Same

The eligibility criteria have not changed. To qualify for FTA, a taxpayer must still meet the same three-part test.

• A clean penalty history for the three tax years preceding the year at issue
• Filing compliance: all required returns filed, or on a valid extension
• Payment compliance: paid, or in an arrangement to pay

FTA also remains unavailable on certain returns, including estate (Form 706) and gift (Form 709) filings, and it continues to operate alongside reasonable cause relief rather than replacing it. The two are distinct tracks. Reasonable cause turns on the facts and circumstances behind a late filing or payment, while FTA is an administrative waiver granted on a clean compliance record alone.

It’s important to note that, when a taxpayer requests reasonable cause relief, but the IRS determines they also qualify for first-time abatement, the IRS applies the first-time abatement. The mechanics of qualifying are unchanged but the delivery is now automatic. For the complete eligibility breakdown, including the return types and penalty categories that do and do not qualify, see our practitioner guide to First Time Penalty Abatement.

What Practitioners Should Watch For

Automatic does not mean guaranteed in every qualifying case.

The IRS is applying the FTA systemically, and systemic processes have edge cases that can result in a qualifying penalty being assessed and not reversed. These include:

• Timing gaps
• Account flags
• Multi-year situations
• Business accounts with mixed penalty types

The COVID-era waivers were a preview. Relief that was supposed to be automatic sometimes was not applied, and practitioners had to request it directly.

Confirm the Abatement on the Transcript

So do not assume the abatement landed. Confirm it on the transcript. When a penalty is assessed on a qualifying client, watch for the assessment transaction code to be followed by its matching reversal. Each covered penalty has its own systemic transaction code pair, and the automatic abatement posts as the second code in the pair.

If the reversal code does not post after the assessment, the abatement did not land, and the manual path is still open. A request by phone or letter will still secure the waiver for a qualifying client. (Manually assessed penalties carry a separate code series, so confirm you are reading the systemic codes above when you verify.)

Mind the Failure to Pay Timing

One wrinkle is worth flagging for the Failure to Pay penalty. Because that penalty keeps accruing until the underlying tax is paid, a qualifying client with an open balance may see FTA applied to the penalty assessed so far while the penalty continues to run on the unpaid amount, so the relief can post in stages rather than all at once.

For a refresher on how the Failure to Pay penalty accrues and where it caps, see our Failure to Pay penalty video walkthrough.

Watch Where the FTA Lands

There is a second thing to watch beyond whether the abatement was posted. Tax pros must determine whether it was posted so that it does the most good. Because the IRS automatically applies FTA, the one-time waiver can be used to abate a small penalty. The IRS weighs penalty relief in a set order (IRM 20.1.1.3):

1. Correction of an IRS error
2. Statutory exceptions
3. FTA
4. Reasonable cause

A clean placement checks the earlier grounds first. The automated flow can short-circuit that: FTA can land on a penalty that disaster-zone relief, an IRS error, or a reasonable cause argument would have removed without touching the client’s FTA eligibility. Once it applies, the three-year clock resets. Recourse here is currently unsettled.

The IRS has not published a way to reverse or redirect an automatically applied FTA, and the AICPA has asked the IRS to allow reversal by substituting reasonable cause so the relief can be preserved for a future year. Until the IRS acts on that, the practical move is to monitor the transcript and, where a client qualifies for reasonable cause on an auto-abated year and a larger penalty may be coming within the lookback window, raise reasonable cause for that year and ask the IRS to apply it in place of the FTA. For prior-year penalties (2024 and earlier), FTA must still be requested manually, so the decision on where to place it remains with you.

Build Verification Into Your Workflow

Building that verification step into your post-filing process is the difference between catching a missed abatement in days and discovering it months later, after the penalty has compounded and the client has already paid. If you need a starting point for the manual request, our FTA letter template is ready to download and adapt.

How IRS Solutions Helps

Confirming the abatement was applied, and catching the clients the system missed, is still the practitioner’s job. IRS Solutions® was built to make that work fast across a full book of business. Three capabilities work together here.

Start at the account/global level with the First Time Abatement (FTA) Finder report, which scans every monitored client and surfaces those who appear to qualify, so you work from a list instead of pulling transcripts one at a time to find candidates.

Then drop into a single account with the FTPA Review report. It reads a client’s transcript history against the FTA criteria and tells you what it sees: whether penalties were assessed in the previous three tax years, or whether a penalty appears to have been removed in another period within the past three years. That second signal matters. A prior removal may indicate a prior abatement, and the report is explicit that it cannot tell whether that earlier relief was granted for reasonable cause or as a First-Time Abatement. Rather than guess, it flags exactly where additional review of IRS records is needed before you rely on eligibility.

IRS Advance Notice™ closes the loop. IAN monitors your clients’ transcripts for changes and alerts you when penalty transaction codes are posted or reversed on an account. When a qualifying penalty is assessed, you see it. When the automatic reversal should follow, you can confirm it did, and act on the cases where it did not, before the client ever receives a bill. Alert types are configurable, so you decide which transcript activity reaches you and how.

Find the candidates, confirm eligibility, watch the codes move: together they turn automatic FTA from something that happens to your clients into something you verify on their behalf.

The Bottom Line

Removing a barrier to penalty relief is a real improvement, and qualifying clients will benefit from it without lifting a finger. The practitioner’s role shifts from requesting abatement to verifying it and catching cases the automated system misses. The firms that build that confirmation step into their workflow will be the ones their clients trust when something slips through.

For the full practitioner guide to automatic FTA, including eligibility details and the downloadable letter template for manual requests, visit our First Time Penalty Abatement resource page.

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This article is provided for general informational and educational purposes for tax professionals and does not constitute legal, tax, or accounting advice. IRS rules and procedures change and may be applied differently to individual circumstances. Always confirm current guidance directly with the IRS and rely on your own professional judgment when advising a client.