IRS Penalty Forgiveness: From FTA to AEP Rules

Accruing IRS penalties can quickly double your tax liability. Fortunately, the IRS offers administrative grace to taxpayers who typically maintain a clean compliance record. Understanding how to request this relief is critical for protecting your business capital.

The First-Time Abatement (FTA) Legacy

Historically, the First-Time Abatement (FTA) program allowed individuals and businesses to request a one-time waiver for failure-to-file, failure-to-pay, or failure-to-deposit penalties. To qualify, you must not have had any penalties in the three tax years prior to the penalized year, and you must currently be up to date on all filing requirements.

The Transition to Automatic Exemption from Penalty (AEP)

As the IRS modernizes its systems, it is transitioning toward the Automatic Exemption from Penalty (AEP) framework. The goal of AEP is to reduce the manual burden on taxpayers by programmatically identifying clean compliance histories and suppressing the penalty assessment before the notice is even mailed.

• How to Claim It: If the automated system fails to apply the exemption, credentialed tax professionals can contact the IRS Practitioner Priority Service to execute the waiver via an oral request, provided the compliance criteria are strictly met.
• Limitations: AEP and FTA do not apply to estimated tax penalties or accuracy-related penalties resulting from an audit.