Automatic Penalty Relief for Eligible Taxpayers

RS Offers Automatic Penalty Relief for Eligible Taxpayers: What the New Rules Mean

By Zaher Fallahi, Tax Attorney, CPA

The Internal Revenue Service (IRS) recently announced a significant administrative change that will simplify penalty relief for many taxpayers with a history of timely tax compliance. Beginning with eligible 2025 tax returns and certain 2026 quarterly filings, the IRS plans to implement its new Automatic Exemption from Penalty (AEP) program.

The new procedure is intended to replace the long-standing First Time Abate (FTA) administrative relief for qualifying taxpayers, eliminating the need in many cases to request penalty relief.

Under the AEP program, the IRS generally will determine eligibility during the processing of an original tax return. Taxpayers with a satisfactory history of timely filing and payment may automatically receive relief from certain failure-to-file, failure-to-pay, and failure-to-deposit penalties. However, the program does not apply to every taxpayer or every return.

Certain estate, gift, information, and transaction-specific returns generally remain outside its scope. In addition, AEP does not eliminate the underlying tax liability, statutory interest, or penalties that are not eligible for relief.

Taxpayers who do not qualify for AEP should not assume that no relief is available. Depending on the facts, they may still qualify for reasonable cause penalty relief or other administrative remedies, including IRS Appeals, Offers in Compromise, installment agreements, or collection alternatives. Determining whether a penalty was properly assessed often requires a careful review of IRS transcripts, filing history, statutory deadlines, and the applicable law.