Login | July 30, 2026
Major taxpayer win: penalty abatement
JULIE JASON
Published: July 30, 2026
Have you ever filed a tax return late, perhaps through no fault of your own?
Being late can trigger the "failure to file penalty," which is generally 5% of the tax due for each month or partial month a return is late, with the penalty accruing up to a maximum of 25% (tinyurl.com/yuandt75).
It turns out that the IRS does provide some relief from these penalties for first-time offenders (my term), and until now, this relief (called First Time Abate, or FTA) was only available to people in the know. That is, taxpayers had to know about the availability for the relief, learn about how to apply for it and then take steps to make the application for relief.
As a result, for years, "too many eligible taxpayers missed out on first-time penalty relief simply because they did not know it was available, did not understand how to request it, could not get through to the IRS, or did not have a tax professional advising them," according to National Taxpayer Advocate Erin M. Collins's blog (tinyurl.com/24tzrjtn).
The National Taxpayer Advocate is the head of TAS, the Taxpayer Advocate Service (taxpayeradvocate.irs.gov), which is an independent organization within the IRS that serves as the taxpayer's "voice at the IRS."
In her Fiscal Year 2024 Objectives Report to Congress, Collins advocated for an automatic penalty relief system, writing that "Under the current policy, the IRS abated approximately two percent of these penalties due to FTA, while under a systemic process, TAS estimates that the IRS would abate 50 percent" (tinyurl.com/nv4w6t4n).
As a result of Collins' and IRS efforts, now there is a new game in town: AEP (Automatic Exemption from Penalty), a penalty relief program that does not require taxpayer action if you qualify. (AEP will eventually replace the First Time Abate option, which is scheduled to be phased out during the summer of 2026.)
Taxpayers will qualify for AEP if they have a history of timely filing a return and paying any tax due in the three prior years. For quarterly returns, the time period is 12 consecutive quarters.
If they qualify, the following penalties will not be assessed during processing: failure to file, failure to pay and failure to deposit (which is for employers that do not make employment tax deposits on time, in the right amount or in the right way).
AEP will apply to eligible original returns beginning with tax year 2025 as well as 2026 quarterly returns, along with future tax periods.
If a taxpayer is eligible for AEP, the IRS will apply it and "issue a notice confirming that the relief was granted." Keep in mind that "taxpayers must still pay any tax and interest due, as well as any penalties not eligible for relief," according to the IRS (tinyurl.com/57npv2hd).
Here are a few things to watch out for:
The IRS notes that during the transition to AEP, "some qualifying taxpayers may still receive penalty notices for eligible tax year 2025 and 2026 quarterly returns. Taxpayers who believe they qualify may contact the IRS to request First Time Abate."
Not all tax returns are eligible for AEP. Form 706, "U.S. Estate Tax Return," and Form 709, "Gift Tax Return," are examples offered by the IRS (returns filed "only in response to specific transactions or infrequent events"), as are information returns (see the IRS webpage "A guide to information returns" at tinyurl.com/yx5kzp9v).
Taxpayers who do not qualify for AEP can request penalty relief "based on reasonable cause." The IRS will review the request and notify you of the outcome. See the IRS webpage "Penalty relief for reasonable cause" (tinyurl.com/533shwhm).
Collins calls AEP a victory for both sides: "Taxpayers benefit because they receive relief without having to navigate another administrative process. The IRS benefits because it should receive fewer phone calls, fewer written requests, and fewer manual penalty abatement cases."
As Collins said, AEP is a major taxpayer win.
Seasoned investment counsel (tinyurl.com/52nus8hz) and award-winning columnist and author, Julie Jason, JD, LLM, promotes financial literacy and investor protection. Read her latest book, "The Discerning Investor: Personal Portfolio Management in Retirement for Lawyers (and Their Clients)" (tinyurl.com/4u7h9pjs), published by the American Bar Association. Write to Julie at readers@juliejason.com. While all questions cannot be answered, each email is read and reviewed and can lead to discussion in a future column.
COPYRIGHT 2026 Julie Jason, DISTRIBUTED BY ANDREWS MCMEEL SYNDICATION, 1130 Walnut St., Kansas City, MO 64106; 816-581-7500