IRS to Automatically Waive Late-Filing Penalties for Taxpayers with Three-Year Clean Record

The IRS announced a new Automatic Exemption from Penalty (AEP) policy that will automatically waive late-filing and late-payment penalties for taxpayers with a clean three-year history of timely filings and payments. Previously, eligible taxpayers had to submit a separate appeal to receive penalty relief, which resulted in many missing out—only 220,000 of 1.5 million eligible taxpayers received waivers last year. The new policy, effective for returns beginning in 2025 and 2026 quarterly returns, applies to failure-to-file, failure-to-pay, and failure-to-deposit penalties, which can reach up to 25% of unpaid tax bills. Taxpayers with a history of late filings remain ineligible for automatic relief but can still request it with reasonable cause. IRS CEO Frank J. Bisignano stated the policy aims to simplify tax payment and reduce administrative burden. The National Taxpayer Advocate noted many eligible taxpayers previously missed relief due to lack of awareness or difficulty navigating the request process.