The AICPA Just Asked the IRS to Expand Penalty Relief. Here's What Changes for CPAs.

The AICPA just sent the IRS a letter asking them to expand the First Time Abatement program. If it happens, you'll have more options when clients hit penalties for the first time.

Right now, First Time Abatement covers three penalties: failure to file, failure to pay, and failure to deposit. That's it. You get one shot at wiping a penalty if your client has a clean three-year history.

The AICPA wants that list bigger. A lot bigger.

What They're Asking For

The March 5 letter lays out seven specific asks:

Expand FTA to Section 6652 penalties. These are the penalties for not filing annual returns — partnership returns, S-corp returns, that kind of thing. Right now, you can't use FTA for those. The AICPA says you should be able to.

Cover information return penalties. Late 1099s, late W-2s, late any-other-form-with-a-number. Same logic: if it's a first offense and your client has been compliant otherwise, let them use FTA.

Let estate and gift filers use it. Currently, estate and gift tax filers don't qualify for FTA at all. The AICPA says they should, especially for recurring filings like annual gift tax returns.

Allow FTA even when EFTPS isn't used. There's a weird exception right now: if the Electronic Federal Tax Payment System is required but your client doesn't use it, they can't get FTA for deposit penalties. The AICPA says that's unnecessarily harsh — kill the exception.

Automatically apply FTA and let taxpayers opt out. Right now, if you demonstrate reasonable cause to get a penalty abated, the IRS often applies FTA first — even if you didn't ask for it. That burns your one-time use. The AICPA wants taxpayers to be able to reject automatic FTA application and save it for later.

Allow FTA for multiple periods if it's one mistake. If a single error causes penalties across multiple years, you should be able to use FTA once to wipe all of them. Makes sense.

Promote awareness. Most taxpayers don't even know FTA exists. The AICPA wants the IRS to tell people about it proactively, especially on penalty notices.

Why This Matters for CPAs

FTA is already one of the easiest penalty relief tools you have. No need to prove reasonable cause, no back-and-forth with the IRS. Just check the boxes: clean three-year history, up to date on filings, paid or arranged to pay the tax. Done.

But it's limited. When a client gets hit with an information return penalty or a partnership late-filing penalty, FTA doesn't help. You're stuck writing reasonable cause letters or negotiating with the IRS. That takes time, and success isn't guaranteed.

If the IRS accepts these recommendations, you'll have more situations where FTA works. That means faster resolutions, happier clients, and less time spent on penalty abatement paperwork.

The AICPA is framing this as a win for everyone: taxpayers get relief, practitioners spend less time on administrative nonsense, and the IRS saves resources by not processing as many penalty appeals.

What Happens Next

This is a recommendation, not a rule change. The IRS has to decide whether to act on it. They could adopt all of it, some of it, or none of it.

But the AICPA doesn't usually send letters like this unless they think there's a real shot. Expanding FTA reduces IRS workload, which is something the agency desperately needs right now.

In the meantime, keep using FTA the way it exists today. And if you have clients sitting on first-time penalties that don't currently qualify for FTA — information returns, partnership filings, that kind of thing — it might be worth holding off on reasonable cause letters for a bit to see if this goes through.

No guarantees. But if the IRS says yes, you'll have a much easier tool to work with.