New IRS program automatically waives certain penalties for taxpayers with a strong compliance history
The IRS has announced a new Automatic Exemption from Penalty (AEP) program that will automatically provide penalty relief to eligible taxpayers beginning with 2025 tax returns and 2026 quarterly returns. The change, announced in IRS News Release IR-2026-83, eliminates the need for many taxpayers to request relief through the current First Time Abatement (FTA) program.
Who qualifies?
To qualify for automatic penalty relief, taxpayers generally must have a history of timely filing returns and paying taxes for the previous three tax years. For quarterly filers, compliance is measured over the previous 12 consecutive quarters.
The AEP program applies to many commonly filed federal tax returns, including:
- Form 1040, U.S. Individual Income Tax Return
- Form 1120-S, U.S. Income Tax Return for an S Corporation
- Form 1065, U.S. Return of Partnership Income
- Federal payroll tax returns
Information returns and estate and gift tax returns are not eligible for the new relief program.
What penalties are covered?
Eligible taxpayers may automatically receive relief from certain penalties, including:
- Failure-to-file penalties
- Failure-to-pay penalties
- Failure-to-deposit penalties
The program does not waive any unpaid tax or interest.
What happens to First Time Abatement?
The IRS will begin phasing out its current First Time Abatement program during the summer of 2026. Under that program, eligible taxpayers were required to request penalty relief directly from the IRS. With AEP, qualifying taxpayers should receive relief automatically, reducing the administrative burden of filing separate requests. Although the IRS has stated that the relief will be applied automatically, taxpayers should expect some implementation challenges as the new process is rolled out. Taxpayers who do not qualify for AEP may still request penalty relief based on reasonable cause.
How Keiter can help
If you receive an IRS penalty notice or have questions about whether you qualify for automatic penalty relief, contact your Keiter Opportunity Advisor to help you evaluate your options and determine whether additional relief may be available.
About the Author
Keya Turakhia
Tax Manager
Keya Turakhia is a Manager in Keiter’s Tax department. She is focused on delivering value added services to her clients by understanding their unique organizational missions and providing tailored services. Keya is a member of Keiter’s Private Client Services team.
The information contained within this article is provided for informational purposes only and is current as of the date published. Online readers are advised not to act upon this information without seeking the service of a professional accountant, as this article is not a substitute for obtaining accounting, tax, or financial advice from a professional accountant.
