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IRS Offers Automatic Tax Penalty Relief for Small Business
12 Aug
Summary
- IRS introduces Automatic Exemption from Penalty program.
- New program replaces First Time Abate process for eligible taxpayers.
- Relief applies to failure-to-file, pay, and deposit penalties.
The Internal Revenue Service (IRS) is set to introduce a new Automatic Exemption from Penalty (AEP) program later this summer. This program is designed to provide financial relief to eligible small businesses that may miss tax deadlines, especially those with a history of compliance. The AEP will replace the existing First Time Abate process.
This initiative will be effective for the 2025 tax period and 2026 quarterly returns, and future tax periods. It acknowledges the financial precarity many small businesses face, with a significant percentage reporting limited operating expenses.
The AEP will automatically grant relief from specified failure-to-file, failure-to-pay, and failure-to-deposit penalties. To qualify, taxpayers generally must have met their tax obligations for the prior three years or 12 consecutive quarters. Businesses also face specific criteria regarding past penalty waivers.
Eligible taxpayers will receive notification from the IRS if a penalty is waived due to their compliance record. The underlying tax obligation, however, remains. Businesses must still settle any unpaid taxes and accrued interest. This automated approach aims to make penalty relief more accessible for small businesses experiencing temporary disruptions.
