IRS Penalty Relief Coming
For years, penalty abatement was one of those requests firms ran on autopilot. A client got hit with a failure to file or failure to pay penalty, someone on staff checked their compliance history, and if it was clean, the firm called or wrote the IRS to ask for First Time Abatement. It worked, it was predictable, and most practitioners could do it in their sleep.
That predictability just ended. This week the IRS rolled out a new Automatic Exemption from Penalty process, and it does not simply supplement First Time Abatement. It replaces it. The new process is built for taxpayers with a track record of filing and paying on time, but the mechanics are fundamentally different from what practitioners have relied on for decades.
Under the old system, relief depended on someone knowing to ask. A practitioner had to recognize that a client qualified, gather the compliance history, and submit a request, whether by phone or in writing. Under the new process, a defined group of taxpayers appears to receive the exemption without lifting a finger, simply because their filing and payment record already meets the bar. That is a meaningful shift in who carries the burden of catching the relief. It used to sit with the practitioner. Now, for at least some clients, it sits with the system itself.
That does not mean every client is covered. Clients with a more complicated compliance picture, penalty types outside the scope of the new process, or histories that fall just short of the automatic threshold will still need someone to request relief the old-fashioned way. The risk right now is assuming the system has it handled when it does not, or assuming a client needs to ask when they no longer do.
This is where the real opportunity sits. The next time a client forwards a penalty notice, the conversation should not start with “let me request abatement for you.” It should start with “let's check whether this was already resolved automatically, and if it was not, why not.” That single question does two things. It shows the client the firm is watching a process the IRS just quietly overhauled, and it surfaces the cases where the firm genuinely needs to step in and advocate. Either way, it is a stronger, more informed conversation than the one firms were having a month ago.
A few things are worth doing now, not after the next notice arrives. Update any client-facing language or engagement materials that reference First Time Abatement by name, since the term no longer describes how relief actually works. Brief staff so nobody spends time drafting an abatement request for a client who already qualifies automatically. And pull recent penalty notices for existing clients to see who might benefit from the new process retroactively, rather than waiting for the next one to land.
If your firm is not already doing so, implementing an automatic transcript process can also add to your credibility and aid in this process. Tools like Canopy’s transcript pulling feature or a Tax Now software that allows you to receive notices of IRS activity on your clients’ accounts weeks before the letters come will also help you be ahead of the curve.
Compliance rules change constantly, but most changes do not require firms to rethink how they talk to clients. This one does. The firms that update their playbook this month will sound informed the next time a client calls about a notice. The ones that do not will be explaining, after the fact, why they were still requesting something the IRS already handles on its own.
Dr. Christine Gervais is a licensed CPA, using her skills to help businesses grow and achieve their fullest potential. Christine has a Master’s degree in accounting from Southern New Hampshire University in addition to holding her CPA license for over a decade. Notably, Christine is a nationally recognized speaker providing education to other CPAs on how to best serve clients as well as instruction on a wide variety of topics for business owners on how to maximize success. Christine prides herself on the value she can bring to clients with her extensive tax knowledge and provides strategic, forward-thinking financial strategies to help clients grow. When not behind her desk, you can find Christine spending quality time with her daughter and stepson or tending to the family’s excessively loved farm animals.
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