IRS: New "Automatic Exemption from Penalty" Replaces First Time Penalty Abatement Program

The IRS recently announced that its long-standing First-Time Abatement (FTA) program is being replaced by a new Automatic Exemption from Penalty (AEP) program, effective in Summer 2026. While taxpayers who are eligible for the AEP will receive penalty relief automatically, others must still take affirmative steps to mitigate their liability exposure.

The Internal Revenue Service (IRS) has announced that a new Automatic Exemption from Penalty (AEP) program will replace its long-standing First-Time Abatement (FTA) program. While this is good news for some taxpayers, for others, failing to file or pay on time continues to pose significant risks. Learn more from Boston IRS tax lawyer Kevin E. Thorn, Managing Partner of Thorn Law Group:

The IRS’ New AEP Program Applies to Qualifying “First Time” Delinquencies

The IRS’ new AEP program applies specifically to “first time” delinquencies, or circumstances in which delinquent taxpayers have timely met their filing and payment obligations in the prior three years. It also applies specifically to the following series of federal returns:

• Forms 1040, 1065, 1120
• Forms 940, 941, 943, 944, 945
• Form CT-1

Additional requirements apply to businesses. For businesses to be eligible, they must not have received Failure to Deposit penalty waivers more than three times in the prior three years, and they must not have been assessed a Failure to Deposit penalty for Electronic Federal Tax Payment System (EFTPS) avoidance.

Other Options Remain Available (and Will Be Necessary in Some Cases)

While the IRS is phasing out its FTA program, its other penalty relief programs are remaining in place. These include penalty relief for reasonable cause and innocent spouse relief, among others. Depending on the circumstances, delinquent taxpayers may also be able to consider alternatives such as:

• Currently-not-collectible (CNC) status
• Offer in compromise
• Voluntary disclosure

Each of these options is available in different circumstances; and, to avoid unnecessary liability, individual and business taxpayers must make informed and strategic decisions based on the specific circumstances at hand. Since certain options (e.g., submitting a voluntary disclosure) can be risky, taxpayers need to ensure that they give due consideration not only to the specific delinquency at issue but also to any other potential civil or criminal enforcement risks.

How Our Tax Law Firm Can Help

At Thorn Law Group, we help individual and business taxpayers resolve high-stakes civil and criminal tax matters. If you are behind on your federal tax obligations (or your business is), it will be critical to make informed decisions about what to do next. We can help and take all necessary and appropriate steps on your behalf.

Schedule a Confidential Consultation with Boston IRS Tax Lawyer Kevin E. Thorn

If you have concerns about your (or your business’s) federal tax compliance record, we invite you to get in touch. To schedule a confidential consultation with Boston IRS tax lawyer Kevin E. Thorn, Managing Partner of Thorn Law Group, please call 617-692-2989 or contact us online today.