A History of Compliance Could Mean Automatic IRS Penalty Relief

Taxpayers who consistently file and pay on time may soon have one less thing to worry about when dealing with certain IRS penalties.

The IRS's new Automatic Exemption from Penalty (AEP) program is designed to recognize taxpayers with a history of timely compliance and automatically provide qualifying penalty relief.

Under the new process, taxpayers generally qualify based on their compliance history over the previous three years. Quarterly filers generally need 12 consecutive quarters of timely filing and payment.

The biggest change is that eligible taxpayers do not have to request the relief. The IRS will apply it during processing and send a notice when the relief has been granted.

The program is part of the IRS's effort to create a more consistent and streamlined approach to administrative penalty relief. Rather than requiring taxpayers with strong compliance histories to make a formal request, the system can recognize their eligibility automatically.

AEP does have limitations, and not every return qualifies. Taxpayers who do not qualify may still be able to request penalty relief based on reasonable cause.

Even when AEP applies, taxpayers remain responsible for paying taxes and interest owed, along with any penalties that are not eligible for relief.