IS IT REAL? AUTOMATIC EXEMPTION FROM PENALTY (AEP)?

Good news for taxpayers with a history of tax compliance: eligible taxpayers will no longer need to request relief separately, as the IRS will automatically review compliance histories and apply penalty relief under the AEP program if eligibility requirements are met. By eliminating the usual requesting step, the IRS is striving for fairness and consistency while encouraging voluntary compliance. The new program covers a laundry list of penalties, including Failure to File penalties under §6651(a)(1) (covering partnerships and S corporations), Failure to Pay penalties under §6651(a)(2) or §6651(a)(3), and Failure to Deposit penalties under §6656. The AEP will apply to eligible original returns beginning with tax year 2025, 2026 quarterly returns, and eligible returns with original due dates on or after January 1, 2027. If qualifying taxpayers still receive penalty notices for eligible 2025 or 2026 returns during this transition period, taxpayers should contact the IRS and request the same old FTA relief while the automatic review process is being fully implemented.

To qualify for the program, the same type of return must have been timely filed for the preceding 3 tax years (or 12 consecutive quarters for quarterly returns). During that compliance period, no penalty—except the estimated tax penalty—must have been assessed. For business taxpayers, a failure-to-deposit penalty cannot have been waived 4 or more times during the prior 3 years (or 12 quarters), and any failure-to-deposit penalty must not have resulted from EFTPS avoidance.

Taxpayers should note that AEP’s automatic processing may take away their chance to confirm eligibility or correct inaccuracies in IRS data before the agency makes its decision. In other words, the effectiveness of the program depends heavily on the accuracy of the IRS’s own records. If errors are found, taxpayers will still have to contact the IRS to resolve the issue. Taxpayers should further note that some returns fall outside the scope of AEP. Information returns and other filings triggered by specific transactions or infrequent events are generally ineligible—such as Form 706 (U.S. Estate and Generation-Skipping Transfer Tax Return) and Form 709 (U.S. Gift and Generation-Skipping Transfer Tax Return). 

Still, for taxpayers who have consistently complied with their tax obligations, AEP will surely slash the usual paper-pushing nonsense and make doing the right thing with the IRS a whole lot easier. And yes, it is real.