IRS Makes Penalty Relief Easier
Good News from the IRS: Penalty Relief Is Finally Becoming Automatic
Historically, the IRS has had a program called First-Time Abate (FTA) that allowed many taxpayers to have certain penalties removed if they had a good compliance history. The problem? You had to know it existed and request it. A lot of taxpayers never did.
The IRS recently announced a new program called Automatic Exemption from Penalty (AEP) that is designed to fix that problem. Instead of making taxpayers ask for relief that is routinely granted, the IRS will automatically apply it when the taxpayer qualifies.
What Is Changing?
Beginning in summer 2026, the IRS will begin transitioning from the old First-Time Abate process to the new Automatic Exemption from Penalty program.
Under the new rules, eligible taxpayers won't need to call the IRS, submit a request, or have their tax professional ask for relief. The IRS will determine eligibility during processing and automatically remove certain penalties before they are assessed.
Who Qualifies?
The basic rule is pretty straightforward:
If you've generally filed your returns on time and paid what you owed for the previous three years (or 12 consecutive quarters for quarterly filers), you may qualify for automatic relief.
Which Penalties Can Be Waived?
The new relief applies to three common penalties:
Failure to File
Failure to Pay
Failure to Deposit (often affecting payroll tax filers and businesses)
If you qualify, these penalties won't be assessed in the first place.
The Best Part? You Don't Have to Know About It.
One of the biggest weaknesses of the old First-Time Abate program was that many taxpayers simply didn't know it existed.
According to the National Taxpayer Advocate, only about 220,000 taxpayers received First-Time Abate relief through the manual process in fiscal year 2025. Estimates suggest that more than 1.5 million taxpayers could have benefited if the relief had been applied automatically.
That's a huge difference.
Important Caveats
Before you start thinking penalties have disappeared forever, there are a few things to keep in mind:
This relief does not eliminate the tax owed.
Interest will still apply when applicable.
Not every return type qualifies.
Information returns and certain infrequent filings, such as estate and gift tax returns, generally aren't eligible. [irs.gov]
In other words, the IRS is giving compliant taxpayers a little grace—not a free pass.
What About Reasonable Cause?
The good news is that reasonable cause relief is still available.
If you don't qualify for automatic relief but had circumstances beyond your control—such as a serious illness, natural disaster, or other qualifying situation—you may still be able to have penalties removed by requesting penalty abatement based on reasonable cause. [irs.gov]
My Take
Honestly, this is one of the most taxpayer-friendly changes I've seen from the IRS in a while.
Making the penalty relief process automatic is simpler, more consistent, and should save taxpayers a lot of unnecessary stress and phone calls.
That said, don't ignore a penalty notice just because this new program exists. The IRS is rolling out the change over time, and there may be situations where a qualifying taxpayer still receives a penalty notice during the transition period. If that happens, it's worth reviewing the notice and discussing it with your tax professional.