Eligible Taxpayers May Now Receive Automatic IRS Penalty Relief: What You Need to Know
The IRS has announced a significant improvement that could save millions of taxpayers from unnecessary penalties. Beginning with eligible 2025 tax returns and 2026 quarterly returns, qualifying taxpayers may automatically receive relief from certain IRS penalties—without having to submit a formal request.
At WR Howell, CPA, we stay ahead of important tax law changes so our clients can benefit from every opportunity available. Here's what this new IRS initiative means for individuals and businesses.
What Is Automatic IRS Penalty Relief?
The IRS is replacing its long-standing First-Time Abatement (FTA) process with a new Automatic Exemption from Penalty (AEP) program.
Previously, many eligible taxpayers missed out on penalty relief simply because they didn't know the program existed or were unaware they needed to request it. Under the new process, the IRS will automatically apply qualifying relief during tax return processing.
This change is designed to make the tax system more efficient while rewarding taxpayers who have consistently met their filing and payment obligations.
Which Penalties Are Covered?
Eligible taxpayers may automatically receive relief from the following penalties:
- Failure to File
- Failure to Pay
- Failure to Deposit
Instead of requesting an abatement after receiving a penalty notice, qualifying taxpayers will generally have these penalties removed before they are assessed.
Who Qualifies?
To be eligible for Automatic Exemption from Penalty (AEP), taxpayers generally must have:
- A history of timely filing tax returns
- Paid any taxes due during the previous three years
- For quarterly filers, maintained compliance for the previous 12 consecutive quarters
The IRS will determine eligibility automatically during return processing.
When Does the New Program Begin?
According to the IRS:
- Automatic relief will begin with eligible 2025 individual and business tax returns.
- It also applies to eligible 2026 quarterly returns.
- Beginning January 1, 2027, AEP will fully replace the First-Time Abatement process for eligible original returns.
During the transition period, some taxpayers may still receive penalty notices. If you believe you qualify, you may still contact the IRS and request First-Time Abatement until the new system is fully implemented.
Not Every Return Qualifies
Certain returns are excluded from the automatic relief program, including:
- Some information returns
- Returns filed only because of specific or infrequent transactions
- Other specialized filings identified by the IRS
If you do not qualify for automatic relief, you may still request penalty relief by demonstrating reasonable cause.
Why This Matters
This update represents a meaningful improvement for taxpayers.
According to the National Taxpayer Advocate, approximately 220,000 taxpayers received First-Time Abatement through the manual process during fiscal year 2025. Had the automatic process been in place, it is estimated that more than 1.5 million taxpayers would have qualified for penalty relief.
For many taxpayers, this means:
- Less paperwork
- Fewer phone calls to the IRS
- Faster resolution
- Reduced administrative burden
- Greater access to relief they already qualified for
Keep in Mind
Automatic penalty relief does not eliminate:
- Taxes owed
- Interest charges
- Penalties that are not covered under the AEP program
Maintaining timely filing and payment remains the best way to avoid unnecessary tax costs.
How WR Howell, CPA Can Help
Tax laws and IRS procedures continue to evolve, making professional guidance more valuable than ever.
At WR Howell, CPA, we combine the expertise of a large accounting firm with the personalized service of a local CPA practice. Since 1994, Wesley R. Howell, CPA has helped individuals, families, and businesses throughout Altamonte Springs, Orlando, Longwood, Casselberry, Sanford, Winter Park, Apopka, and surrounding Central Florida communities navigate changing tax regulations with confidence.
Whether you need tax planning, accounting services, business consulting, or assistance responding to IRS notices, we're committed to helping you minimize tax liability while protecting your financial future.
Contact WR Howell, CPA today to ensure you're taking advantage of every tax relief opportunity available and staying compliant with the latest IRS updates.
Credits
This article was prepared by WR Howell, CPA based on information reported by Martha Waggoner in The Tax Adviser (AICPA).
Original Source:
Martha Waggoner. "Eligible taxpayers to get automatic IRS penalty relief." The Tax Adviser, July 2026.
https://www.thetaxadviser.com/news/2026/jul/eligible-taxpayers-to-get-automatic-irs-penalty-relief/