New IRS Penalty Abatement Program Streamlines Relief for Eligible Taxpayers

The IRS has established a new Automatic Exemption from Penalty (AEP) program that will streamline relief for eligible taxpayers. For those who are not eligible, nothing is changing. In all cases, delinquent taxpayers need to make informed decisions about coming into compliance, as IRS audits and investigations can lead to serious consequences.

The Internal Revenue Service (IRS) has long offered penalty relief to eligible taxpayers. Historically, taxpayers have been required to request the relief that was available to them. Beginning in Summer 2026, however, some taxpayers will automatically be eligible for penalty relief once they come into compliance. Learn more from New Jersey IRS lawyer Kevin E. Thorn, Managing Partner of Thorn Law Group:

IRS Establishes New Automatic Exemption from Penalty (AEP) Program

Effective “Summer 2026,” the IRS is establishing a new Automatic Exemption from Penalty (AEP) program. The AEP is replacing the IRS’ long-standing First Time Abatement (FTA) program; and, as its name suggests, it provides automatic penalty relief to eligible taxpayers.

Under the AEP, delinquent taxpayers who have timely met their filing and payment obligations in each of the prior three years will be eligible for automatic relief from the following penalties:

• Failure to File
• Failure to Pay
• Failure to Deposit

To qualify, business taxpayers must also have received no more than three Failure to Deposit penalty waivers in the past three years, and they must not have been charged a Failure to Deposit penalty for Electronic Federal Tax Payment System (EFTPS) avoidance.

If a taxpayer is eligible, upon coming into compliance, the taxpayer should receive a letter from the IRS stating that the AEP is being applied. Those who do not receive a letter from the IRS should consult their legal counsel to determine whether this was an IRS oversight or whether they need to take additional steps to come into compliance.

What if the AEP Doesn’t Apply?

Taxpayers who are not eligible for the AEP have the same options—and remain subject to the same risks—that existed before the AEP took effect. In this scenario, promptly coming into compliance can be critical to avoiding a high-stakes IRS audit or IRS CI investigation. Depending on the circumstances at hand, taxpayers’ options in this scenario may include:

• Coming current on their filing and payment obligations and applying for cause-based penalty relief
• Negotiating a settlement agreement with the IRS
• Seeking currently-not-collectible (CNC) status
• Submitting an offer in compromise (OIC)
• Submitting a voluntary disclosure

These are just examples. At Thorn Law Group, we help delinquent taxpayers make informed decisions about coming into compliance. If you are behind on your federal tax obligations, we can help you weigh your options and make an informed decision about how best to proceed. If warranted, we can also communicate with the IRS on your behalf and work to secure a favorable resolution that avoids unnecessary liability.

Schedule a Confidential Initial Consultation with New Jersey IRS Lawyer Kevin E. Thorn

If you need to know more, we invite you to get in touch. To schedule a confidential initial consultation with New Jersey IRS lawyer Kevin E. Thorn, Managing Partner of Thorn Law Group, please call 201-842-7696 or contact us confidentially online today.