First Time Abate for Late Partnership and S Corporation Returns

When a partnership or S corporation gets hit with a late filing penalty, most owners start drafting excuses. The accountant was slow. The bookkeeper quit. The K-1s from another entity came in late.

Sometimes you do not need an excuse at all. If the entity has a clean record, the IRS has an administrative waiver called First Time Abate (FTA) that can remove the penalty based on history alone. Here is how it works for Forms 1065 and 1120-S, and where entities get tripped up.

What First Time Abate Is

FTA is an administrative waiver, not a statutory rule. It lives in IRM 20.1.1.3.3.2.1. According to that section, the IRS provides relief from these penalties if the criteria are met:

• Failure to file penalties under IRC 6651(a)(1), IRC 6698(a)(1), or IRC 6699(a)(1)
• Failure to pay penalties under IRC 6651(a)(2) and (a)(3)
• Failure to deposit penalties under IRC 6656

IRC 6698(a)(1) is the penalty for filing a partnership return late. IRC 6699(a)(1) is the penalty for filing an S corporation return late. Both are on the list. For how those penalties are computed, see our guides to the Form 1065 late filing penalty and the Form 1120-S late filing penalty.

The IRM says the waiver was implemented in 2001 for tax periods ending after December 31, 2000, and is available the first time a taxpayer is subject to one or more of the listed penalties for a single return.

What FTA Does Not Cover: Incomplete Returns

Notice the "(a)(1)" in those citations. That matters. IRC 6698 and 6699 each have two prongs: (a)(1) for filing late and (a)(2) for filing a return that is missing required information.

FTA covers only the late filing prong. IRM 20.1.2.4.3 says FTA does not apply to IRC 6698(a)(2) penalties, and IRM 20.1.2.6.3 says the same for IRC 6699(a)(2). If your penalty is for an incomplete return, you will need reasonable cause or, for some small partnerships, Rev. Proc. 84-35.

IRM 20.1.1.3.3.2.1 also notes that taxpayers who file an incomplete Form 1065 or Form 1120-S are given an opportunity to submit the missing information before the incomplete return penalty is assessed. If you get that request, answer it. That is the cheapest fix available.

The Three-Year Look-Back

FTA is all about history. Under IRM 20.1.1.3.3.2.1, the general criteria are:

1. Same return, three prior years. The entity filed the same return as the penalized return for the 3 years before the penalized tax period, unless there was no filing requirement.
2. No unreversed penalties. Those prior-year returns were processed and the modules have no unreversed penalties of any type, except an estimated tax penalty.
3. No prior FTA. The prior-year modules have no penalties removed under the FTA penalty reason codes (or the tolerance code).

The IRS's own FTA web page states it this way: a penalty that was assessed but later removed for reasonable cause or IRS error does not ruin your history. A penalty removed under FTA does.

FTA Is Not Penalty-Specific

This trips people up. IRM 20.1.1.3.3.2.1 says that if there is any unreversed penalty on a module in the look-back period (other than the estimated tax penalty), FTA does not apply to any penalty on the module under consideration. A different kind of penalty in a prior year still counts.

Extra Rules for Business Returns

Partnerships and S corporations are business (BMF) accounts, and the IRM adds two more ways to fail FTA on business accounts:

• Four or more failure to deposit penalty waiver codes in the three-year history.
• A Form 1120 or Form 1120-S filed late but not penalized in the three-year look-back period.

That second one is worth reading twice. A prior late 1120-S that somehow escaped a penalty can still block FTA for the current year. The IRS is looking at your filing behavior, not just your penalty history.

One Period Only

IRM 20.1.1.3.3.2.1 is explicit: FTA relief applies to a single tax period, and only one for which the criteria are met. It is not available just because this is your first request for relief.

The IRM example: a taxpayer with a clean history who is penalized on four periods in one year can get FTA only on the first of those periods. The rest require reasonable cause. And a taxpayer who was not compliant in the prior three years cannot use FTA simply because they never asked for relief before.

For an entity with several late years, this changes the strategy. If you are catching up on multiple unfiled 1065 or 1120-S returns, FTA may help with the earliest year, if it helps at all. Later years will need another basis.

FTA Comes First

Under IRM 20.1.1.3.3.2.1, administrative waivers, including FTA, are considered and applied before reasonable cause. If you qualify for FTA, the IRS will apply it and tell you the penalty was removed based on your compliance history, not your reasonable cause statement.

That has a downside. Once FTA is used, it sits in your look-back period and blocks FTA for later years. So if you have a strong reasonable cause argument, or a partnership that fits Rev. Proc. 84-35 small partnership relief, think about which path to lead with. IRM 20.1.2.4.3.1 tells IRS employees not to reject a partnership's abatement request to obtain more information when the partnership qualifies for FTA. In other words, FTA may simply be applied. Be deliberate about what you ask for.

How to Request FTA

The IRS website lists these options:

• By phone, using the toll-free number in the top right corner of your notice.
• In writing, with a written statement or Form 843, Claim for Refund and Request for Abatement.

The IRS page says you do not need to name FTA or attach supporting documents for this kind of request. IRM 20.1.1.3.3.2.1 also states that FTA is an administrative waiver with no oral statement authority threshold, and that taxpayers are not required to specifically request FTA to be eligible.

The New Automatic Program: AEP

The IRS is changing how this works. Its FTA page says FTA is transitioning to a new relief called Automatic Exemption from Penalty (AEP), starting in summer 2026.

According to that page, AEP applies to 2025 tax year returns and later, and to 2026 quarterly returns and later. It is applied automatically when the original return completes processing, and no penalty is assessed. FTA continues to apply to earlier years and to eligible returns not considered for AEP.

The page lists Forms 1040, 1065, and 1120 among the return series eligible for AEP. It lists the IRC 6698(a)(1) partnership penalty and the IRC 6699(a)(1) S corporation penalty as eligible under FTA or the new AEP, but it does not specifically name Form 1120-S in the AEP return list. If you have a late 2025 Form 1120-S, watch the notices closely and confirm how the IRS treated it.

This is new, and IRS procedures will develop. For older years, FTA remains the tool.

The Bottom Line

First Time Abate is the closest thing the IRS has to a no-questions-asked penalty waiver. For a partnership or S corporation with three clean years behind it, it can make a late filing penalty disappear with a phone call.

But it is a one-period tool with a long memory. Use it on purpose. For a broader look at how penalty relief works, see our firm's penalty abatement overview, or call the Law Offices of Darrin T. Mish, P.A. in Tampa, Florida at 813-229-7100. A clean record is an asset. Spend it wisely.