Newsletters
IMPORTANT TAX ALERT: Automatic Penalty Relief
The IRS is making it easier for taxpayers with a strong compliance history to avoid certain
penalties. Beginning with eligible 2025 tax returns and 2026 quarterly returns, a new
program called Automatic Exemption from Penalty (AEP) will gradually replace the
current First Time Abate (FTA) penalty relief process.
What Is Changing?
Under the current First Time Abate program, eligible taxpayers generally must contact the
IRS to request relief after a penalty has been assessed. Under the new AEP program,
qualifying taxpayers will receive relief automatically, reducing administrative burden and
eliminating the need to request relief.
Who Qualifies?
Taxpayers may be eligible for AEP if they have demonstrated a history of timely compliance,
including:
- Filing returns on time for the previous three years
- Filing 12 consecutive quarterly returns on time
- Paying any taxes due during those periods
What Penalties Can Be Waived?
If eligible, the IRS will not assess certain penalties during return processing, including:
- Failure-to-file penalties
- Failure-to-pay penalties
- Failure-to-deposit penalties
No Action Required
Eligible taxpayers do not need to file a form or contact the IRS to receive AEP relief. If the
IRS applies AEP the taxpayer will receive a notice confirming that the penalty was not
assessed because of the taxpayer’s timely compliance history.
Important Exceptions
Not all returns qualify for AEP. Returns that are filed only for specific transactions or
infrequent events generally are not eligible. Examples include:
- Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return.
- Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return.
- Information return generally.
Interest Charges still apply: It is critical to note that penalty relief, whether automatic under
AEP or requested under FTA or reasonable cause, does not eliminate statutory interest.
Interest continues to accrue on any unpaid tax balance until the balance is paid in full. The
IRS generally lacks the statutory authority to waive interest except in cases of IRS error or
delay.
Non-Eligible Penalties: Penalties related to accuracy, fraud, or specialized reporting
requirements remain outside the scope of the AEP and FTA programs.
Transition Period
The IRS expects AEP implementation to begin in summer 2026. During the transition, some
taxpayers with eligible 2025 tax year returns or 2026 quarterly returns may still receive
penalty notices before the IRS’s automated systems are fully implemented.
If you receive a penalty notice during this transition period and believe you qualify for relief,
you may still contact the IRS to request First Time Abate.
The IRS expects AEP to fully replace First Time Abate for eligible returns with original due
dates on or after January 1, 2027.
Other Relief Options Remain Available
Taxpayers who do not qualify for AEP may still request penalty relief based on reasonable
cause. The IRS will review each request and notify taxpayers of its decision. For additional
information, see IRS guidance on penalty relief for reasonable cause.
Keep in mind that even when penalty relief is granted, taxpayers remain responsible for:
- Any tax due.
- Interest charges.
- Penalties that are not eligible for relief.
How Can MillerMusmar Help?
If you receive an IRS penalty notice and are unsure whether you qualify for relief, our team
can help evaluate your options and assist with the appropriate response. Please contact us
with any questions regarding your specific situation.