
Key Takeaways
- Starting in 2026, taxpayers with a good history of filing and paying taxes over the three previous years may qualify for the IRS's Automatic Exemption from Penalty program to have failure-to-file, failure-to-pay, and failure-to-deposit penalties automatically waived.
- The IRS can waive penalties if you demonstrate that your failure to comply with tax requirements was due to reasonable cause. Acceptable reasons include serious illness, natural disasters, or other events beyond your control that prevented timely tax filing or payment. However, ignorance of the law, relying on an advisor, and lack of funds are generally not treated as reasonable causes.
- The IRS can grant penalty relief to large groups of taxpayers in response to administrative issues, such as delays in IRS-issued guidance.
- If you’re seeking penalty relief, follow the instructions in the notice received from the IRS or file Form 843 to explain your situation and provide any necessary documentation. If your request is denied, you can appeal the decision to the IRS Independent Office of Appeals and further escalate the case to court if needed.
If you don’t file a federal tax return or pay the tax you owe on time, the IRS can hit you with a tax penalty. These penalties can add up to hundreds or even thousands of dollars, so it’s not something to take lightly.
Fortunately, the IRS has some tax penalty abatement (i.e., waiver) options that might be available to you. If you qualify, all or part of your penalty can be erased.
If you’re faced with an IRS penalty, here are some of the different types of tax penalty relief you’ll want to explore.
What is the Automatic Exemption from Penalty (AEP) program?
Under the Automatic Exemption from Penalty (AEP) program, the IRS will automatically waive certain penalties if you have a history of filing and paying your taxes on time. Unlike the First-Time Penalty Abatement program (discussed below), you don't need to do anything to receive penalty relief under the AEP program.
The AEP program will be gradually phased-in starting in 2026. Specifically, for individual taxpayers, it applies to 1040 forms filed for the 2025 tax year and beyond (it also applies to various quarterly returns filed by businesses for the 2026 tax year and later). The AEP program will completely replace the First-Time Penalty Abatement program for penalties related to tax returns originally due in 2027 and thereafter.
TurboTax Tip:
Since a penalty is never assessed under the AEP program, you can't rack up interest on an unpaid penalty.
What penalties can be waived through the AEP program?
An automatic AEP waiver is only available for:
- failure-to-file penalties
- failure-to-pay penalties
- failure-to-deposit penalties
So, for example, your penalty might be eliminated if you failed to file your federal personal income tax return by the due date. You can also seek relief if you’re penalized for failing to pay any income tax you owe when it’s due. Employers who don’t make timely or proper employment tax deposits can seek an AEP penalty abatement, too.
Who qualifies for the AEP program?
For failure-to-file and failure-to-pay penalties, you'll generally qualify for AEP relief if, for the previous three years:
- you timely filed the same type of return (for example, a 1040 form), if required to do so
- either no IRS penalties were assessed against you (other than an estimated tax penalty), or any penalties against you were waived for reasonable cause (discussed below) or an IRS mistake
In addition, for businesses facing a failure-to-deposit penalty, AEP relief will only be granted if the:
- IRS's didn't waive a failure-to-deposit penalty four or more times during the previous three years (or 12 consecutive quarters)
- penalty being waived wasn't for Electronic Federal Tax Payment System avoidance
Anyone who doesn't qualify for AEP relief can still seek a penalty waiver for reasonable cause. However, that route requires a request and IRS review, rather than being automatic.
How does the AEP program work?
If you qualify for relief under the AEP program, you won't have to contact the IRS or submit any paperwork to have a failure-to-file or failure-to-pay penalty waived. Instead, the IRS won't impose the penalty at all – so there's nothing to waive.
You'll get a letter in the mail from the IRS letting you know that AEP relief was applied. But no response or follow-up is needed on your end.
In addition, since a penalty is never assessed under the AEP program, you can't rack up interest on an unpaid penalty. In contrast, under the First-Time Penalty Abatement program, a penalty can keep accruing interest until the penalty is paid or abated.
What is the IRS First-Time Penalty Abatement (FTA) program?
As with the AEP program (discussed above), you can reduce or make a tax penalty completely disappear through the IRS’s First-Time Abatement (FTA) program if you have a clean record with the IRS. However, starting in 2026, the IRS is phasing-out the FTA program and replacing it with the AEP program. The FTA program will be completely replaced for penalties associated with tax returns originally due on or after January 1, 2027.
For penalties not subject to the AEP program, first-time abatement is an administrative waiver that can be applied to failure-to-file, failure-to-pay, or failure-to-deposit penalties. Eligibility rules for FTA relief are similar to those for the AEP program. However, unlike the AEP program, FTA relief is not automatically applied – you have to contact the IRS to request an FTA waiver. That's the main difference between the two programs.
What is reasonable cause penalty relief?
The IRS can also waive certain penalties if you acted with reasonable cause and in good faith. Whether you acted with reasonable cause is determined on a case-by-case basis and depends on all the facts and circumstances.
The reasons that qualify for relief also depend on the type of penalty you owe. However, you can’t eliminate all penalties based on the reasonable cause. For example, the reasonable cause provisions don’t apply to estimated tax penalties.
Let’s take a look at how you can seek reasonable cause relief for a few common types of penalties.
What qualifies as reasonable cause for failure-to-file penalty relief?
If you’re hit with an IRS penalty for filing your tax return late, the IRS can waive the penalty if you have a good reason for not fulfilling your filing obligations.
Examples of sufficient reasons for failing to file on time include:
- serious illness impacting your ability to file
- death or serious illness of an immediate family member
- fires, natural disasters, or civil disturbances that prevent you from filing a return (for example, your tax records are destroyed)
- inability to determine the amount of tax due for reasons beyond your control
- unavoidable absences that prevent the timely filing of a return
- system issues that delayed a timely electronic filing
Other reasons may suffice if you can show that you exercised ordinary care and prudence but were still unable to file on time.
What qualifies as reasonable cause for failure-to-pay penalty relief?
If you’re penalized for not paying the tax you owe in a timely fashion, the IRS can also waive the penalty if you have a good reason for not making your payment on time.
Examples of sufficient reasons for failing to pay on time include:
- serious illness impacting your ability to pay
- death or serious illness of an immediate family member
- fires, natural disasters, or civil disturbances that prevent you from making a tax payment
- inability to determine the amount of tax due for reasons beyond your control
- unavoidable absences that prevent the timely payment of tax
- system issues that delayed a timely electronic payment
As with failure-to-file penalties, there may be other reasons for a reasonable cause waiver if you can show that you exercised ordinary care and prudence but were still unable to pay on time.
What doesn’t qualify as reasonable cause for the failure to file or pay?
Whether you’re dealing with a failure-to-file or failure-to-pay penalty, these reasons usually don’t satisfy the IRS’s reasonable cause standard on their own:
- reliance on a tax professional
- ignorance of the law
- mistakes and oversights on your tax return
- lack of funds
What qualifies as reasonable cause for accuracy-related penalty relief?
The IRS can impose an accuracy-related penalty if you underpay the amount of tax you legally owe (for example, if you don’t pay enough tax because you claimed a tax deduction for which you’re not eligible). To determine if you qualify for reasonable cause relief from an accuracy-related penalty, the most important factor is the extent of your efforts to assess your actual tax liability.
According to the IRS, it will consider several factors to determine whether you qualify for reasonable cause penalty relief, including:
- efforts you made to report the correct tax
- the complexity of your tax issues
- your education, experience, or knowledge of tax law
- steps you took to understand your tax obligation or seek help from a tax advisor
If you relied on a tax advisor, the IRS might also consider whether you provided all the information needed to calculate your tax and your advisor’s experience with your tax situation.
What is statutory exception penalty relief?
In some cases, the U.S. tax code might provide a provision that triggers penalty relief. This is known as statutory exception penalty relief.
Let’s take a quick look at a few common examples of penalty relief based on a statutory exception.
1. You received incorrect advice from the IRS.
Statutory penalty relief might be available if you received a penalty because you sent a written request for information to the IRS, received incorrect written advice from the IRS in response to your request, and reasonably relied on the incorrect advice.
2. You mailed-in or e-filed your return on time.
A late-filing penalty can be waived by statute if you show that you properly mailed or e-filed your tax return before the filing deadline.
3. You’re impacted by a natural disaster.
Penalty relief might be available under tax statutes if you’re impacted by a federal disaster.
4. You’re involved in military operations in a combat zone.
Late filing and payment penalties may be waived by law for service members and civilians working in a combat zone.
What is tax administration penalty relief?
The IRS can establish widespread penalty relief policies that impact a large number of people under specific conditions. For instance, this type of administrative penalty waiver might be announced if there’s an IRS delay in releasing tax forms or guidance.
An administrative waiver can be revealed in either a:
- policy statement
- news release
- notice
- other formal communication stating the IRS penalty relief policy
For an example of an administrative waiver, see the IRS news release announcing temporary penalty relief for employers and others regarding the information reporting requirements for the tips deduction and overtime deduction.
What is interest relief?
You should also realize that the IRS charges interest on unpaid taxes and on unpaid penalties. And that interest keeps growing until your balance is paid in full.
Interest on unpaid taxes generally can’t be waived, but it can be reduced if it’s applied because of an unreasonable error or delay by an IRS officer or employee.
When it comes to interest on a penalty, the IRS will reduce or completely eliminate the interest if the penalty itself is waived.
How do I request penalty or interest relief?
You’ll receive a notice in the mail from the IRS if you’re hit with a federal tax penalty (if AEP relief is applied, the notice will let you know that the penalty was automatically waived). Follow the instructions in the letter to request penalty relief. For instance, you may be asked to send the IRS a written statement or explanation of why you qualify (such as illness, disaster, or other reasonable cause).
Can I request penalty relief by phone?
In some cases, you can ask for penalty relief by calling the IRS. Use the toll-free number shown on your IRS notice. When calling:
- Have your IRS notice and taxpayer information handy.
- Be prepared to explain your reason for requesting relief.
- The IRS representative may be able to approve your request over the phone.
Can I request relief using Form 843
You can also seek a penalty or interest waiver by filing Form 843 with the IRS. When completing the form:
- Check the appropriate box in the Penalty section on the first page to indicate the reason for filing Form 843. This is typically the first box in the Penalty section.
- On Line 7, check the appropriate box and provide a clear explanation of why you qualify (for example, illness or natural disaster) on Line 8.
- Attach supporting documentation such as medical records, FEMA declarations, or written IRS advice.
- Mail the completed form and attachments to the IRS address listed in the official Form 843 instructions.
How long does it take to find out if you’re approved for penalty relief?
The IRS doesn’t have a set timeline for approving penalty relief requests. In some cases, you can get approval over the phone immediately. In other cases, you might have to wait several months for an answer.
What if my penalty relief is denied, can I appeal it?
It’s not necessarily the end of the road if the IRS denies your request for penalty relief. Your first course of action is to ask the IRS Independent Office of Appeals to review your request. If that doesn’t work, you can take the IRS to court.
How do I appeal to the IRS Independent Office of Appeals?
According to the IRS, you can generally request a review through the Independent Office of Appeals within 30 days of the date on your denial letter. To start an appeal, you generally must:
- Write a letter stating you are appealing a penalty abatement denial.
- Include a copy of your IRS denial notice.
- Provide any documentation or explanations you want the Independent Office of Appeals to consider.
- Send your appeal request to the address listed on your denial letter before the deadline.
What happens during the appeals process?
Appeals will independently review your position and the IRS’s position. You may request a conference by phone or in person. You can also have an attorney, CPA, or enrolled agent represent you. If you cannot afford professional help, you might qualify for free or low-cost assistance.
Can you escalate your case to court?
If you don’t agree with the decision from the Independent Office of Appeals, you can file a lawsuit with the U.S. Tax Court before paying the tax or penalty. If you already paid the tax you are disputing, you can also file a lawsuit in the U.S. District Court or the U.S. Court of Federal Claims.
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