The Internal Revenue Service is introducing a new automatic process to provide penalty relief for taxpayers who have a history of filing and paying their tax debts on time, lessening the need for them to ask for assistance.
The new process, known as Automatic Exemption from Penalty, will eventually replace the longtime First Time Abatement process for administrative relief. It’s designed to simplify the penalty relief process and reduce the burden for those with a timely compliance history.
The new AEP program is set to start this summer. It will apply to eligible original returns beginning with tax year 2025 and 2026 quarterly returns, along with future tax periods. Taxpayers will be able to qualify if they have a history of filing their returns on a timely basis and paying any tax due in the three prior years (or 12 consecutive quarters for quarterly returns). When taxpayers qualify, penalties are not assessed including processing failure to file. failure to pay or failure to deposit their taxes.
Taxpayers won’t need to take action to receive this relief. If they’re eligible, the IRS will apply the AEP to them and issue a notice confirming that the relief was granted.
However, not all returns are eligible for the new program. For example, information returns and returns that are filed only in response to specific transactions or infrequent events (such as Form 706, U.S. Estate Tax Return or Form 709 Gift Tax Return) generally aren’t eligible.
Up until now, First Time Abatement has been the most common form of administrative penalty relief, allowing eligible taxpayers with a history of timely compliance to request the removal of certain penalties. The IRS plans to begin phasing out the First Time Abatement program and transitioning to AEP this summer. During the transition, some qualifying taxpayers may still receive penalty notices for eligible tax year 2025 and 2026 quarterly returns, the IRS noted.
Taxpayers who believe they qualify can contact the IRS to ask for First Time Abatement. The new AEP program provides relief automatically and will replace First Time Abate for eligible returns with original due dates on or after Jan. 1, 2027. For more information, visit Administrative penalty relief.
Taxpayers who don’t qualify for the automatic AEP program can still ask for penalty relief based on reasonable cause. The IRS said it will review those requests and notify taxpayers of the outcome. For more information, see Penalty relief for reasonable cause.
While AEP prevents the assessment of certain penalties, taxpayers must still pay any tax and interest due, as well as any penalties not eligible for relief.
The IRS said it’s making the change to promote fairness and consistency in the application of penalty relief while encouraging voluntary compliance. By automatically recognizing taxpayers with a strong compliance history, the IRS said AEP would “reduce taxpayer burden and ensure penalty relief is applied fairly and equitably to all taxpayers.”
For eligible individual taxpayers, AEP will prevent failure-to-file and failure-to-pay penalties from being assessed, she noted. And for eligible business taxpayers, AEP prevents failure-to-file, failure-to-pay and failure-to-deposit penalties from being assessed.
The information presented here should not be construed as legal, tax, accounting, or valuation advice. No one should act on such information without appropriate professional advice and after a thorough examination of the particular situation.
