IRS Announces Automatic Exemption from Penalty Program

Under current IRS rules, penalty relief is frequently granted for failure to file, failure to pay and failure to deposit--assuming the taxpayer is a first-time offender with a solid history of tax compliance. The IRS has now announced an automatic exemption from penalty (AEP) process that will replace the existing first-time abatement (FTA) process. The IRS recognized that the FTA process is not written into the law--instead, it exists because it is included in the internal revenue manual, or IRM, which provides guidelines for IRS' employees to follow. Taxpayers were required to request the FTA after receiving notice of the penalty. Under the AEP, taxpayers qualify if they have a history of filing and paying on a timely basis for the prior three years or 12 quarters, when quarterly returns are involved. For qualifying taxpayers, no penalties will be assessed for failure to file, failure to pay or failure to deposit (taxpayers must continue to pay any related tax and interest). The IRS will provide the taxpayer with a notice confirming that the relief has been granted. The AEP will be available for original tax returns beginning with quarterly returns for the 2025 and 2026 tax years and is expected to begin this summer. Taxpayers who do not qualify under the AEP can continue to request relief if they can demonstrate reasonable cause. For more information on the penalties for failure to timely pay taxes, visit Tax Facts Online. Read More: Link to Q648. Note: Q is updated.