The IRS is introducing a new Automatic Exemption from Penalty (AEP) program that will automatically provide penalty relief to many taxpayers with a history of filing and paying their taxes on time. Beginning with eligible 2025 tax returns and 2026 quarterly returns, many qualifying taxpayers will no longer need to request first-time penalty relief—the IRS will apply it automatically during return processing.
In general, taxpayers may qualify if they have filed required returns on time and paid any tax due for the previous three years (or 12 consecutive quarters for quarterly filers). Eligible individuals may receive relief from certain failure-to-file and failure-to-pay penalties, while eligible businesses may also receive relief from certain failure-to-deposit penalties. Taxpayers who qualify will receive an IRS notice confirming the relief. However, taxes owed, interest, and penalties that are not eligible for relief must still be paid.
Not all tax returns qualify for the new program, and taxpayers who are not eligible may still request penalty relief based on reasonable cause. The IRS plans to fully replace the current First Time Abate process with the new automatic system for eligible returns due on or after January 1, 2027.
Source: IRS.gov – Administrative Penalty Relief (www.irs.gov)