IRS Implements Automatic Penalty Relief
In a July 8 news release, IR-2026-83, the IRS announced a new automatic process for penalty relief available to taxpayers who have historically filed returns and paid taxes on time. Although the IRS has a long-standing policy of routinely granting first-time penalty abatement relief, taxpayers were previously required to formally request such relief. The new automatic process is a win-win for taxpayers and the IRS: Taxpayers will no longer need to formally request relief, and the IRS will not need to review and approve such requests.
The new Automatic Exemption from Penalty (AEP) is expected to begin this summer and apply to eligible original returns for tax year 2025, 2026 quarterly returns, and future tax periods. Taxpayers qualify for AEP if they have a history of timely filing returns and paying tax due in the three prior years (or 12 consecutive quarters for quarterly returns). If eligible, the IRS will apply AEP to failure to file, failure to pay, and failure to deposit penalties and issue a notice confirming that the relief was granted. AEP is not available for information returns or returns filed only in response to "specific transactions or infrequent events," such as Form 706 estate tax or Form 709 gift tax returns. AEP does not apply to tax, interest, or penalties not eligible for relief.
During the transition period as the IRS begins implementing AEP, a qualifying taxpayer receiving a penalty notice for an eligible tax return for an eligible period may contact the IRS to request first time abatement relief. AEP is expected to be fully-functioning for eligible returns with original due dates on/after January 1, 2027. Taxpayers who do not qualify for AEP may still request relief based on reasonable cause.
For more information on the IRS's new automatic first-time penalty relief process, please contact Charles Jensen, Thomas Molins, Jay Simpson, Molly Maurin, Charles Hutchison or the Stinson LLP contact with whom you regularly work.
