The Internal Revenue Service has announced a new relief program, the Automatic Exemption from Penalty (AEP), expected to take effect this summer. AEP will replace the long-standing First Time Abate program and is intended to reduce administrative burden for taxpayers with a demonstrated history of compliance. The program applies to eligible original returns beginning with tax year 2025, as well as 2026 quarterly returns and future tax periods. Eligibility is generally based on a history of timely filing and payment over the prior three years, or 12 consecutive quarters for quarterly filers.
No action is required on the part of the taxpayer. Relief will be applied automatically during processing for eligible taxpayers, and a notice will be issued confirming the determination. The following penalties are eligible for automatic relief under this program:
- Failure to file
- Failure to pay
- Failure to deposit
Not all returns qualify for this relief. Information returns and returns filed only in connection with specific or infrequent transactions, such as Form 706 (U.S. Estate Tax Return) or Form 709 (Gift Tax Return), are generally excluded. Additionally, while AEP prevents the assessment of qualifying penalties, taxpayers remain responsible for any tax and interest due, as well as any penalties that do not fall within the scope of the program.
Taxpayers who do not qualify for automatic relief may still request penalty abatement on the basis of reasonable cause, which the IRS will evaluate on a case-by-case basis. Should you receive a penalty notice and have questions about your eligibility, please call us at (401) 921-2000 or contact us here.