IRS Launches Phase-Out and Replacement of First-Time Penalty Abatement Program

The IRS is phasing out its First Time Abatement (FTA) program and replacing it with a new Automatic Exemption from Penalty (AEP) program that does not require taxpayers to file for available relief. However, taxpayers that are not eligible for the AEP will still need to take proactive steps to minimize their liability exposure going forward.

While the Internal Revenue Service (IRS) has long offered penalty relief to eligible taxpayers, it has historically required taxpayers to file for available relief. However, this is changing in certain circumstances. Under the IRS’ new Automatic Exemption from Penalty (AEP), eligible taxpayers do not need to file for relief when making late payments or filing delinquent returns. Learn more from Virginia IRS lawyer Kevin E. Thorn, Managing Partner of Thorn Law Group:  

What Taxpayers Need to Know About the Automatic Exemption from Penalty (AEP) Program

The new AEP is replacing the IRS’ long-standing First Time Abatement (FTA) program. As a result, it applies specifically (and exclusively) to taxpayers who need to resolve late payments or delinquent filings after having timely met their federal tax obligations in each of the prior three years. For businesses, additional eligibility requirements apply.

Under the AEP, the IRS will automatically waive the penalties that would otherwise apply with respect to the following return series:

• Forms 1040, 1065, 1120
• Forms 940, 941, 943, 944, 945
• Form CT-1

The AEP covers the IRS’ Failure to File, Failure to Pay, and Failure to Deposit penalties. It applies to annual returns filed for 2025 and subsequent tax years, and to quarterly returns for 2026 and subsequent tax years.

What the IRS’ New Penalty Relief Program Does Not Cover

The IRS’ new AEP does not apply in any circumstances other than those discussed above. Among other things, this means that it does not cover:

• Delinquencies related to taxpayers’ other filing obligations
• Cause-based penalty relief requests (i.e., reasonable cause or innocent spouse relief)
• Violations that expose taxpayers to criminal prosecution

In all scenarios, delinquent taxpayers need to make informed and strategic decisions about how best to proceed. While this may involve filing a delinquent return in certain circumstances, in others, it may involve submitting a voluntary disclosure or pursuing various other options.

How We Help Delinquent Taxpayers in Virginia

We provide custom-tailored advice and legal representation to delinquent taxpayers in Virginia. If you have concerns about your (or your business’s) federal tax liability, we can explain the risks you face and the options available. We can also communicate with the IRS on your behalf. We have a long record of success representing taxpayers in high-stakes situations, and we can use our experience to help protect you (or your business) by all means available.

Schedule an Appointment with Virginia IRS Lawyer Kevin E. Thorn

For more information, contact us today. Call us at 703-752-3752 or inquire online to schedule an appointment with Virginia IRS lawyer Kevin E. Thorn, Managing Partner of Thorn Law Group.