A new automatic process provides penalty relief for clients with a history of filing and paying on time reduces the need for tax professionals to request penalty abatement.

The new Automatic Exemption from Penalty (AEP) will replace the long-standing First Time Abate administrative relief. AEP is a systemic administrative relief program expected to begin this summer. AEP applies to eligible original returns beginning with tax year 2025 and 2026 quarterly returns, as well as future tax periods. Clients qualify if they have a history of timely filing the return and paying any tax due in the three prior years (or 12 consecutive quarters for quarterly returns). When taxpayers qualify, penalties are not assessed during processing for:

Failure to file;

Failure to pay; or

Failure to deposit.

Tax professionals and their clients do not need to take action to receive this relief. If a client is eligible, the IRS will apply AEP and issue a notice confirming that the relief was granted.

Clients 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.

While AEP prevents the assessment of certain penalties, clients must still pay any tax and interest due, as well as any penalties not eligible for relief. The recent IRS news release explains that not all returns are eligible for AEP and provides details on the phaseout of First Time Abate