Could You Qualify for the IRS's New Automatic Penalty Relief? Here's What Taxpayers Need to Know

In an important development at the IRS, taxpayers who have a history of compliance will no longer need to request a First-Time Abate (FTA) waiver from the agency in connection with certain IRS failure-to-file, failure-to-pay, and failure-to-deposit tax penalties. The IRS has updated its systems so it will identify and automatically remove penalties for certain taxpayers who have maintained a clean compliance history over the preceding three years (i.e., timely filing applicable tax returns and paying the associated taxes due). The IRS will also notify taxpayers when this automatic penalty relief has been granted. This new Automatic Exemption from Penalty (AEP) initiative reflects the IRS's recognition that taxpayers who consistently comply with their tax obligations should not have to submit a formal request for relief that is routinely granted.

AEP will apply to original returns beginning with the 2025 tax year, along with 2026 quarterly tax returns and future tax periods. Some returns, including information returns and returns filed in response to specific transactions (such as gift tax returns), generally are not eligible for AEP. The IRS will begin phasing out the First-Time Abate (FTA) waiver and transitioning to AEP during the summer of 2026. During this transition, some qualifying taxpayers may still receive IRS penalty notices for eligible 2025 tax year and 2026 quarterly returns. Taxpayers who believe they qualify may still contact the IRS to request an FTA waiver. However, AEP will fully replace FTA waivers for eligible returns with original due dates on or after January 1, 2027.

The new Automatic Exemption from Penalty (AEP) may provide meaningful relief for eligible taxpayers and could eliminate the need to request penalty abatement in many cases. If you have received an IRS penalty notice, have questions about your eligibility, or would like to understand how these changes may affect your tax situation, please contact your Schulman Lobel advisor. We are here to help you evaluate your options and ensure you receive any penalty relief available under the new IRS guidance.

Questions about how these new IRS penalty relief rules may apply to you? Our advisors can help you determine your eligibility and guide you through your next steps.

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