Automatic IRS Penalty Relief: What It Means for You

The IRS has introduced a new process called Automatic Exemption from Penalty (AEP) that may help taxpayers avoid certain penalties without having to request relief.

In simple terms, if you usually file and pay on time but make a one-time mistake, the IRS may automatically remove certain penalties for you. This is a change from the older First Time Abate process, which required taxpayers to contact the IRS to ask for relief.

What penalties may be covered?

AEP can apply to these common penalties:

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

It does not apply to every penalty. For example, accuracy-related penalties and many information return penalties are not covered.

Who may qualify?

The IRS generally requires a strong prior compliance history. In most cases, that means three prior years of timely filing, payment, and deposit compliance. For quarterly returns, the standard is generally 12 consecutive compliant quarters.

The new automatic process begins with eligible original returns for tax year 2025 and 2026 quarterly returns, and is expected to continue going forward.

What should clients know?

If you qualify, the IRS is expected to apply the relief automatically and notify you. No separate request should be needed.

However, this does not eliminate the tax due, and it does not remove interest. It also does not mean every return or every taxpayer will qualify. Certain returns, including many information returns and some event-based returns, are excluded.

Why this matters

This change should make penalty relief easier for taxpayers with a good compliance history and reduce the need to contact the IRS for routine first-time relief. Still, the best protection is always: file on time, pay on time, and respond quickly to IRS notices.