WASHINGTON, D.C. — The Internal Revenue Service will begin automatically withholding certain penalties from eligible taxpayers this summer, replacing a request-based program with a system intended to reduce paperwork and apply relief more consistently.
The Automatic Exemption from Penalty program will cover eligible original returns beginning with tax year 2025, quarterly returns filed in 2026 and future tax periods, according to the agency.
Taxpayers generally must have filed required returns and paid taxes due on time during the previous three years to qualify. For quarterly returns, the compliance period extends across the previous 12 consecutive quarters.
Eligible taxpayers will not be assessed failure-to-file, failure-to-pay or failure-to-deposit penalties during return processing. The IRS will apply the exemption without requiring a formal request and send affected taxpayers notices confirming the relief.
“By automatically applying penalty relief, the IRS recognizes that taxpayers who historically pay on time should not have to make a formal request for relief that is routinely granted,” IRS Chief Executive Officer Frank J. Bisignano stated.
The program will replace First Time Abate, the agency’s longstanding administrative process for removing certain penalties from taxpayers with otherwise timely compliance histories.
The IRS plans to begin phasing out First Time Abate during summer 2026. Some qualifying taxpayers may continue receiving penalty notices during the transition and may contact the agency to request relief under the existing program.
Automatic Exemption from Penalty will fully replace First Time Abate for eligible returns with original due dates on or after Jan. 1, 2027.
Not every return will qualify. Information returns and forms generally filed only after specific or infrequent events, including federal estate and gift tax returns, are typically excluded.
Taxpayers who do not qualify for automatic relief may continue requesting penalty removal based on reasonable cause. Those applications will remain subject to IRS review.
The exemption applies only to eligible penalties. Taxpayers remain responsible for the underlying tax liability, accrued interest and any penalties outside the program.
Additional information about penalty relief and eligibility requirements is available at IRS.gov.
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