IRS Introduces Automatic Penalty Relief For Taxpayers With Strong Filing Histories
The IRS is changing how it provides penalty relief to taxpayers who generally file their returns and pay their taxes on time.
Under a new initiative called the Automatic Exemption from Penalty, or AEP, eligible taxpayers will receive relief during return processing without having to contact the IRS or submit a separate request. The program is being introduced as a replacement for the agency’s longstanding First Time Abate process.
AEP can prevent three common penalties from being assessed:
- Failure-to-file penalties
- Failure-to-pay penalties
- Failure-to-deposit penalties
To qualify, taxpayers generally must have filed required returns on time and paid any taxes owed during the previous three years. For quarterly filers, the IRS will review compliance across the preceding 12 consecutive quarters.
The program applies to eligible original returns beginning with tax year 2025, as well as qualifying quarterly returns filed for 2026 and later periods. Taxpayers who receive the exemption do not need to request it. Instead, the IRS will apply the relief automatically and issue a notice explaining that the applicable penalty was not assessed.
Not every return qualifies. Returns associated with transactions or events that occur infrequently—such as certain federal estate and gift tax returns—are generally excluded. Taxpayers must also meet the applicable filing and payment-history requirements.
The transition to the new system will take place gradually. First Time Abate will remain available in some situations while AEP is being implemented. Consequently, an otherwise qualified taxpayer could still receive a penalty notice involving a 2025 return or a 2026 quarterly filing. Anyone who believes a penalty was assessed incorrectly during this period may contact the IRS to ask whether relief is available.
AEP is expected to fully replace First Time Abate for eligible returns with original due dates on or after January 1, 2027.
Although the program can prevent certain penalties, it does not eliminate the underlying tax obligation. Taxpayers must still pay the taxes and interest they owe, along with any penalties that are not covered by the exemption.
Taxpayers who do not meet the AEP requirements may have other options. For example, the IRS can grant penalty relief when a taxpayer establishes reasonable cause for failing to comply.
The new automatic process makes a history of timely filing and payment even more valuable. Businesses and individuals should continue maintaining accurate records, monitoring filing deadlines and addressing unpaid balances promptly. Anyone who receives an unexpected IRS notice should review it carefully rather than assuming the agency has already considered every available form of relief.
Fast Forward Accounting Solutions can help taxpayers evaluate IRS notices, understand available penalty-relief options and remain compliant with their federal tax responsibilities.
Source: Internal Revenue Service
