IRS Makes First-Time Penalty Relief Automatic — But Watch the Trade-Off

This is good news, but there can be a catch to it

The IRS is doing something I did not expect: making penalty relief happen without anyone having to ask for it.

On July 8, the IRS announced the Automatic Exemption from Penalty (AEP), which replaces the old First Time Abate (FTA) program. Under FTA, you had to call the IRS or file a Form 843 and request the waiver. Under AEP, if you qualify, the penalty simply never gets assessed, and the IRS sends you a letter telling you so.

Here is how it works. If you file or pay late but have timely filed and paid for the prior three years (or 12 consecutive quarters for quarterly filers), the IRS will not assess failure-to-file, failure-to-pay, or failure-to-deposit penalties. Eligible returns include Forms 1040, 1065, 1120, and the payroll series — 940, 941, 943, 944, 945. Form 943 matters for a lot of farm employers.