The Internal Revenue Service has announced a major administrative shift that will automatically waive three common penalties, failure to file, failure to pay, and failure to deposit for taxpayers maintaining a consistent record of timely compliance.
This newly established mechanism, designated as Automatic Exemption from Penalty (AEP), will replace the longstanding First-Time Abatement (FTA) framework, according to an official statement released by the agency.
“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,” stated IRS CEO Frank Bisignano in the press release.
Background and Projected Impact
The groundwork for this policy transition was originally laid in November, when National Taxpayer Advocate Erin Collins, who leads the Taxpayer Advocate Service (TAS), disclosed the agency’s intention to automate first-time penalty waivers during the AICPA National Tax Conference.
Under the previous system, procedures governing First-Time Abatement were published exclusively within the Internal Revenue Manual (IRM) the internal guidelines intended for IRS personnel. Because these guidelines were neither statutory nor regulatory, taxpayers, certified public accountants, or legal representatives calling on behalf of clients were required to possess explicit prior knowledge of the IRM to request relief.
“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,” Collins explained in a blog post.
Collins emphasized that the updated policy will deliver a substantial practical impact:
- Fiscal Year 2025: Approximately 220,000 taxpayers successfully received FTA relief via the manual application process.
- Estimated AEP Reach: TAS projections indicate that had the automated system been active during that same timeframe, over 1.5 million taxpayers would have qualified for automatic relief.
Program Guidelines and Implementation Timeline
Scheduled to launch this summer, the AEP program will apply to eligible original returns beginning with tax year 2025, 2026 quarterly returns, and all subsequent filing periods. To qualify, taxpayers must demonstrate a clean compliance record – specifically having filed all required returns and paid any tax due on time for the preceding three tax years (or 12 consecutive quarters for quarterly filers).
When a taxpayer meets these qualifications:
- Penalties for failure to file, failure to pay, or failure to deposit will not be assessed during initial processing.
- The IRS will apply the relief automatically and issue a written notice confirming that the exemption has been granted.
Important Exceptions: Certain filings remain ineligible for automatic relief, including information returns and returns required solely in response to isolated transactions or infrequent tax events.
Transition Phase
During the phase-in from the FTA model to the new system, certain eligible taxpayers filing tax year 2025 returns or 2026 quarterly returns may still inadvertently receive penalty notices. Taxpayers who believe they qualify may reach out to the IRS directly to request First Time Abate.
AEP will fully supplant the manual FTA process for eligible returns carrying original due dates on or after January 1, 2027. Taxpayers seeking additional details can consult the administrative penalty relief guidance on the official IRS website.
Alternative Penalty Relief Options
Taxpayers who do not satisfy the criteria for AEP may still apply for relief under traditional reasonable cause standards. The IRS will evaluate these submissions on an individual basis and notify applicants of the final decision.
While AEP prevents the assessment of specified penalties, it does not forgive underlying tax obligations or accrued interest. Taxpayers remain responsible for paying all assessed taxes, applicable interest, and any non-exempt penalties in full.