IRS Automatic Penalty Relief: What Taxpayers Need to Know

The IRS is introducing its Automatic Exemption from Penalty program (AEP), to automatically prevent the assessment of certain penalties for taxpayers with a history of timely compliance. AEP is intended to help eligible taxpayers who generally meet their filing, payment and deposit obligations on time but have a one-time compliance issue. 

 

How AEP works

AEP prevents certain penalties from being assessed during original return processing in cases where the taxpayer meets eligibility requirements. No application, form, or separate request is required.

 

AEP generally applies to the following penalties:

• Failure to file penalties
• Failure to pay penalties
• Failure to deposit penalties

To qualify for AEP, taxpayers must meet the applicable requirements, including having three prior years of timely compliance. When AEP applies, the IRS will send the taxpayer a notice explaining that the penalty was not assessed because of the taxpayer's three prior years of timely compliance. 

 

Some penalties still apply

AEP only prevents certain penalties from being assessed. Taxpayers who do not meet the eligibility requirements may still be assessed penalties, including failure to file, failure to pay, and failure to deposit penalties.  

 

AEP does not apply to:

• Daily Delinquency penalties
• Accuracy-related penalties
• Information return penalties 
• Other penalties not covered by AEP

AEP is not available to everyone who files late

AEP is limited to eligible returns. A taxpayer who files an eligible return late, pays late, or deposits late will only automatically receive relief when all AEP requirements are met. The three prior years (or 12 consecutive quarters) of timely compliance requirement is a key part of eligibility.

First Time Abate transition

First Time Abate, or FTA, remains available for certain returns during the transition to AEP.  FTA still applies to:

• Eligible 2024 tax year returns
• Eligible 2025 quarterly returns
• Eligible 2025 tax year returns processed before AEP starts
• Eligible 2026 quarterly returns processed before AEP starts

However, taxpayers will need to contact the IRS and request FTA for these returns, as it will not be applied automatically. 

 

For original returns with due dates of Jan. 1, 2027, or later, FTA will no longer be available and will be replaced by AEP.

Other penalty relief may be available

Taxpayers who do not qualify for AEP have other options to seek penalty relief including penalty relief based on reasonable cause   if they meet the requirements. 

 

Key reminders

Taxpayers should continue to file and pay on time. AEP does not eliminate penalties, it does not apply to every taxpayer, and it does not apply to every type of penalty.