IRS Automatic Penalty Relief 2027: Replacing First-Time Penalty Abatement

What Is the IRS Automatic Exemption from Penalty (AEP)?

The Automatic Exemption from Penalty (AEP) is a new IRS program that automatically removes certain penalties for qualifying taxpayers.

Unlike the current First-Time Penalty Abatement program, you won't need to request the relief. If you qualify, the IRS will automatically apply the exemption during processing and send you a notice confirming the penalties were removed.

The program will be fully effective for eligible tax returns with original due dates on or after January 1, 2027.

What Penalties Can Be Automatically Removed?

Eligible taxpayers may receive automatic relief from these common IRS penalties:

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

This change is intended to reduce unnecessary paperwork while rewarding taxpayers who consistently meet their filing and payment obligations.

Who Qualifies for Automatic Penalty Relief?

To qualify for AEP, taxpayers generally must have a strong compliance history.

You may qualify if you have:

Timely filed your required tax returns for the previous three tax years, or 12 consecutive quarters for quarterly returns. Paid any taxes due during that same period.

If these requirements are met, the IRS will automatically determine eligibility and remove applicable penalties without requiring you to submit an abatement request.

What Is NOT Covered?

One important exception is estimated tax penalties.

Just like the existing First-Time Penalty Abatement program, estimated tax penalties cannot be waived under the new Automatic Exemption from Penalty program.

Additionally, not every tax return qualifies.

Examples of returns that generally are not eligible include:

• Information returns
• Form 706 (U.S. Estate Tax Return)
• Form 709 (Gift Tax Return)
• Returns filed only because of specific transactions or infrequent events

What Happens During the Transition?

Although the IRS is beginning the transition now, the current First-Time Penalty Abatement program is not disappearing overnight.

During the transition period, some taxpayers who qualify may still receive IRS penalty notices for:

• Tax Year 2025 returns
• 2026 quarterly tax returns

If that happens, you may still be eligible to request First-Time Penalty Abatement directly from the IRS.

If you're unsure whether you qualify, it's a good idea to speak with a tax professional before paying the penalty.

Frequently Asked Questions

Do I have to apply for the new Automatic Exemption from Penalty?

No. If you qualify, the IRS will automatically apply the relief and notify you.

When does the new program begin?

The program is being phased in now and becomes fully effective for eligible returns with original due dates on or after January 1, 2027.

Can estimated tax penalties be removed?

No. Estimated tax penalties are not eligible under either the current First-Time Penalty Abatement program or the new Automatic Exemption from Penalty program.

What if I receive a penalty notice during the transition?

If your return is for Tax Year 2025 or a 2026 quarterly return and you believe you qualify, you may still request First-Time Penalty Abatement from the IRS.

How Kamish & Associates Can Help

Receiving an IRS penalty notice doesn't always mean you have to pay it.

At Kamish & Associates, we help individuals and business owners review IRS notices, determine whether penalty relief is available, and communicate with the IRS on your behalf when appropriate.

If you've received an IRS notice or aren't sure whether you qualify for penalty relief, we're here to help you understand your options and avoid paying penalties you may not owe.

Need help with an IRS notice? Contact Kamish & Associates today to schedule a consultation.