Penalty Relief vs. Voluntary Disclosure: Key Considerations for Taxpayers in 2026

The IRS has launched a new automatic penalty relief program. However, taxpayers will still need to apply for penalty relief in some cases, and those who are not eligible will need to consider other alternatives. In some cases, this will involve submitting a voluntary disclosure.

Taxpayers who are eligible for penalty relief from the IRS can often substantially reduce the amount they owe. The IRS announced a new Automatic Exemption from Penalty (AEP) program in 2026; as a result, some eligible taxpayers will now receive penalty relief automatically. However, other taxpayers will still need to file, and some will need to consider other options. Learn more from New Jersey tax defense lawyer Kevin E. Thorn, Managing Partner of Thorn Law Group:

When Are Taxpayers Eligible for the IRS’ New Automatic Exemption from Penalty (AEP) Program?

The IRS’ new Automatic Exemption from Penalty (AEP) program is replacing its long-standing First Time Abatement (FTA) program for federal returns with due dates on or after January 1, 2027. However, AEP is currently available for qualifying returns due in 2024 or later. To qualify for AEP, a taxpayer must have timely met all filing and payment obligations in the prior three years, and the penalties in question must apply to an eligible return. As the IRS explains, certain returns, “like ones filed only in response to specific transactions or infrequent events,” are not eligible.

When Can Taxpayers Who Aren’t Eligible for AEP Seek Penalty Relief?

Taxpayers who are not eligible for AEP may still be eligible for other forms of penalty relief from the IRS. These include penalty relief based on “reasonable cause” and innocent spouse relief, among others. Specific eligibility criteria apply as well, and to avoid inadvertently triggering IRS scrutiny, taxpayers should confirm their eligibility before filing.

When Should Taxpayers Consider a Voluntary Disclosure Instead of Seeking Penalty Relief?

The IRS’ Voluntary Disclosure Practice (VDP) provides a way for eligible taxpayers to resolve willful tax law violations. Taxpayers who have willfully underreported or underpaid their federal tax liability may need to consider submitting a voluntary disclosure instead of seeking penalty relief. Strict eligibility criteria also apply, and taxpayers should consult experienced tax counsel to ensure disclosing a willful violation is their best option before moving forward.

How New Jersey Tax Defense Lawyer Kevin E. Thorn Can Help

If you need to come into compliance with your federal tax obligations, New Jersey tax defense lawyer Kevin E. Thorn, Managing Partner of Thorn Law Group, can help you make an informed decision about how to proceed. Mr. Thorn draws on decades of experience to help his clients resolve high-stakes federal tax controversies favorably, without undue liability.

Request a Confidential Initial Consultation

To request a confidential initial consultation with Mr. Thorn, contact Thorn Law Group today. Call us at 201-842-7696 or tell us how we can reach you online to schedule an appointment as soon as possible.