You Make the Call - March 12, 2026

Question: Jane Harper, a U.S. taxpayer, did not file her 2024 federal income tax return by the due date and did not pay the tax she owed. The IRS assessed both a failure to file (FTF) penalty under §6651(a)(1) and a failure to pay (FTP) penalty under §6651(a)(2). Jane has a good compliance history—she filed and paid on time for the prior three years and has not previously received penalty abatement. After receiving a notice from the IRS, Jane calls the IRS and requests penalty relief under the first-time abate (FTA) administrative waiver. Jane felt she had to affirmatively request penalty abatement, rather than wait for any automatic application. What are the current IRS procedures and any recent changes regarding the automatic application of FTA for a client like Jane?

Answer: If a taxpayer like Jane Harper fails to file and pay her taxes and is assessed FTF and FTP penalties, she may qualify for FTA penalty relief if she has a clean compliance history for the prior three years and has not previously received FTA for the same return type. FTA is an administrative waiver that applies to failure-to-file [§6651(a)(1)] and failure-to-pay [§6651(a)(2)] penalties and may also apply to failure-to-deposit (FTD) penalties under §6656. Under Internal Revenue Manual (IRM) 20.1.1.3.3.2.4, modules granted administrative relief due to a three-year history of timely filing and timely payment reflect Transaction Code (TC) 971 Action Code (AC) 996, and a posted TC 971 AC 996 will systemically reverse assessed FTF and/or FTP penalties. Beginning Jan. 1, 2026, the TC 971 AC 996 will also systemically reverse an assessed failure-to-deposit (FTD) penalty and prevent future accruals or assessments. While the IRS is moving toward automatically applying FTA to eligible taxpayers, as of now, the most reliable way to ensure FTA is considered is for the taxpayer to affirmatively request penalty relief—either by phone or in writing—after receiving a penalty notice. 

When a taxpayer requests any type of penalty relief, the IRS will review the account for FTA eligibility and apply it if the criteria are met, notifying the taxpayer if relief is granted; in some cases, FTA may be applied automatically even without a specific request, but full automation is not yet universal.