When Can (and Should) Taxpayers Seek Penalty Relief from the IRS?

The IRS has announced a new automatic penalty relief program for eligible returns with due dates in 2024 or later. For returns due in 2023 or earlier, the IRS’ existing penalty relief structure will continue to apply. Certain aspects of the IRS’ existing penalty relief structure will continue to apply.

The IRS is replacing its long-standing First Time Abatement (FTA) penalty relief program with a new program that offers automatic penalty relief to eligible taxpayers. However, some taxpayers will still need to apply for penalty relief, even if eligible. Learn more from Boston IRS tax lawyer Kevin E. Thorn, Managing Partner of Thorn Law Group:

What is the IRS’ New Automatic Exemption from Penalty (AEP) Program?

The IRS’ new Automatic Exemption from Penalty (AEP) program is intended to provide “an easier path to receive penalty relief” for taxpayers who have a history of compliance. Under the AEP program, eligible taxpayers will receive automatic relief from the following penalties without the need to file a request with the IRS:

• Failure to file penalty
• Failure to pay penalty
• Failure to deposit penalty

The AEP applies to eligible returns filed for the 2025 and 2026 tax years, and it will fully replace the IRS’ long-standing First Time Abatement (FTA) penalty relief program for returns with due dates on or after January 1, 2027. However, the IRS notes that some taxpayers who are eligible for AEP may still receive penalty notices during the IRS’ transition period, and these taxpayers “may contact the IRS to request First Time Abate during this transition.”

While the AEP program applies to most standard federal returns, not all returns are eligible. For example, the IRS also notes that returns that are filed “only in response to specific transactions or infrequent events (such as Form 706, U.S. Estate Tax Return or Form 709 Gift Tax Return)” generally will not be eligible for AEP.

What if Taxpayers Don’t Qualify for AEP?

The IRS’ new AEP program affords automatic relief to taxpayers who have filed and paid on time in the previous three years. So, what if you don’t qualify for AEP?

Taxpayers who do not qualify for AEP may still qualify for other forms of penalty relief from the IRS. This includes penalty relief based on “reasonable cause,” among other grounds. Those who do not qualify for any form of penalty relief may be able to mitigate their outstanding liability through an offer in compromise, voluntary disclosure, or other means.

How We Can Help

If you have questions about seeking penalty relief from the IRS or exploring other options to mitigate your federal liability, we can help. Contact us to learn more.

Schedule a Call with Boston IRS Tax Lawyer Kevin E. Thorn

To schedule a call with Boston IRS tax lawyer Kevin E. Thorn, Managing Partner of Thorn Law Group, contact us today. Call us at 617-692-2989 or contact us confidentially online to arrange a confidential consultation.