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The Internal Revenue Service is phasing in a new automatic process to provide penalty relief for taxpayers with a history of filing and paying on time. Eligible taxpayers will no longer need to ask for the relief, meaning potentially millions more filers won’t end up paying extra to Uncle Sam.
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The only thing worse than coming up with money to pay your federal tax bill is having to pay more because of a penalty. But soon, that will no long be a problem for millions of U.S. taxpayers.
This summer, the Internal Revenue Service will begin automatically waiving certain penalties for eligible filers. The process, dubbed Automatic Exemption from Penalty or AEP, is being rolled out in phases, with most of the affected taxpayers feeling the full benefits of the change during the 2027 tax filing season.
AEP will reward taxpayers who have a history of filing and paying on time, but who happened to miss a deadline. When such situations happened in the past, the taxpayers had to request the relief.
Many filers, however, didn’t realize the option, known as First Time Abate, was available. Over the years, many eligible taxpayers never claimed the penalty relief.
The Taxpayer Advocate Service says that in fiscal year 2025, nearly 220,000 taxpayers received FTA relief through the manual process. If AEP had been in place for the same period, more than 1.5 million taxpayers would have received penalty relief — about seven times as many — without having to ask for it.
Now, AEP eliminates that request hurdle for filers who have history of timely tax compliance. With AEP, penalty relief now will apply by default to these taxpayers who, had they asked, would have been granted it by the IRS.
Eligible (or not) return filings: AEP applies to eligible original returns beginning with tax year 2025 and 2026 quarterly returns, as well as future tax periods.
Taxpayers qualify if they have a history of timely filing the return and paying any tax due in the three prior years. For taxpayers who file quarterly returns, eligibility is granted for those who have made 12 consecutive on-time filings and payments.
When taxpayers qualify, the IRS will not assess penalties during processing for —
- Failure to file.
- Failure to pay.
- Failure to deposit.
As noted, with AEP taxpayers won’t have to any take action to get the relief. If eligible, the IRS will apply AEP and issue a notice confirming that the relief was granted.
However, the IRS points out that not all returns are eligible for AEP.
For example, information returns and returns that are filed only in response to specific transactions or infrequent events (such as Form 706, U.S. Estate Tax Return, or Form 709 Gift Tax Return) generally are not eligible.
Relief requests will still be accepted: The IRS has provided different types of administrative tax relief over the years. First Time Abate, or FTA, was the most common administrative penalty waiver provided by the IRS. It applied to taxpayers with three years of timely compliance history.
But as FTA begins transitioning this summer to AEP, some taxpayers who qualify for the new, simpler automatic relief may still receive penalty notices for eligible tax year 2025 and 2026 quarterly returns.
If this happens, the IRS says taxpayers who believe they qualify for relief still may contact the IRS to request FTA relief.
In addition, the IRS says that taxpayers who do not qualify for AEP may still request penalty relief based on reasonable cause. The IRS will review those requests and notify taxpayers of the outcome. More information on the process is available at IRS.gov’s Penalty Relief for Reasonable Cause page.
While FTA, and now AEP, will prevent taxpayers from facing certain penalties, they still must pay any tax and interest due, as well as any penalties not eligible for relief.
The more things change, the more they stay the same: Whether you go with French writer Jean-Baptiste Alphonse Karr or New Jersey rock star Jon Bon Jovi, the adage on persistence definitely applies to taxes.
Much of the time, tax laws are tweaked rather than created anew. Some expired tax provisions occasionally find their way back into the Internal Revenue Code.
And while it’s not quite analogous, the AEP move reminds me of the change the IRS made in 2006 to the tax return filing extension request system. Back then, instead of the current one Form 4868 filing, taxpayers had to request a four-month extension and then, if needed, two more months to get until Oct. 15 to file.
Eliminating that tedious extension process 20 years ago was a boon for both taxpayers and the IRS. Similar benefits are expected from the IRS’ switch to AEP.
When AEP is fully in place, IRS will deal with fewer taxpayer phone calls and written follow-ups to penalty notices that are eligible for relief. Agency staff will be able to focus on work that requires their judgment and direct assistance.
AEP-eligible taxpayers will no longer have to deal with additional IRS interactions to get relief. And, of course, they will see immediate real dollar relief from waived penalties without any extra effort.
AEP “reflects the IRS’ commitment to making the payment of taxes owed simpler and more consistent,” added IRS Chief Executive Officer Frank J. Bisignano. “By automatically applying penalty relief, the IRS recognizes that taxpayers who historically pay on time should not have to make a formal request for relief that is routinely granted.”
Plus, notes the IRS, the new penalty relief process will ensure penalty relief is applied fairly and equitably to all, thereby observing their taxpayer rights.
Taxpayer Advocate also applauds change: National Taxpayer Advocate (NTA) Erin M. Collins agrees. She calls the implementation of AEP a long-awaited taxpayer win in a recent NTA Blog post.
“For years, too many eligible taxpayers missed out on first-time penalty relief simply because they did not know it was available, did not understand how to request it, could not get through to the IRS, or did not have a tax professional advising them. That is especially true for low-income taxpayers and taxpayers who cannot afford representation,” Collins wrote.
“A penalty that may seem modest to some taxpayers can be financially significant for a taxpayer struggling to pay rent, utilities, groceries, transportation, or medical expenses. AEP helps fix that problem,” she added.
The problem, continued Collins, was not with the concept of FTA. The problem was the process. Relief was available, but taxpayers generally had to ask for it.
AEP will correct that unnecessary step.
You also might find these items of interest:
- Some tax penalties increase in 2026 due to inflation
- IRS payment plans could help you deal with a large tax bill
- Don’t panic. That’s the first move to make when you get an IRS tax notice.
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