The IRS has replaced its old penalty forgiveness process with a new automated system that may eliminate certain tax penalties without taxpayers having to ask.
Getting a letter from the IRS can be stressful, especially when it includes penalties that add hundreds or even thousands of dollars to a tax bill. But beginning in summer 2026, some taxpayers may catch a break.
The Internal Revenue Service has launched a new Automatic Exemption from Penalty (AEP) program that can remove certain tax penalties automatically during processing. In many cases, eligible taxpayers will not have to call the IRS or submit paperwork to receive the relief.
The change could help individuals, families, and small businesses across California, where rising living costs and economic uncertainty have left many households financially stretched.
What Changed?
For years, the IRS offered a program called First Time Abate (FTA). Under that system, taxpayers generally had to request relief and meet specific compliance requirements.
The new Automatic Exemption from Penalty program replaces that process. Instead of waiting for taxpayers to ask for relief, the IRS now automatically reviews whether a taxpayer has a recent history of complying with tax rules.
If they qualify, the IRS removes eligible penalties during processing.
The change is intended to simplify the system and reduce paperwork for both taxpayers and the agency.
Which Penalties Can Be Removed?
The automated relief applies to three common IRS penalties:
- Failure to file a tax return
- Failure to pay taxes owed
- Failure to deposit certain taxes, including some business-related tax obligations
These penalties can quickly increase the amount a taxpayer owes and often create additional financial pressure.
Who Qualifies?
According to the IRS, taxpayers may qualify if they have demonstrated a history of timely tax compliance.
Generally, the IRS looks at whether taxpayers:
- Filed returns on time during the previous three years, or the prior 12 consecutive quarters for certain business taxpayers
- Paid taxes on time
- Maintained a record of compliance with filing and payment requirements
Because the review happens automatically, many eligible taxpayers may never need to contact the IRS.
Why This Matters in California
California has experienced multiple economic shocks in recent years, including inflation, higher housing costs, devastating wildfires, and business disruptions affecting communities throughout the state.
Many Latino families and small-business owners operate with thin financial margins. Unexpected tax penalties can make it more difficult to pay rent, cover payroll, or manage household expenses.
The new process may provide relief for taxpayers who made an isolated mistake but otherwise maintained a good record with the IRS.
For small businesses in Los Angeles and other California communities, automatic penalty removal could mean preserving cash flow during already challenging economic conditions.
What If You Don’t Qualify Automatically?
The IRS still offers another pathway called Reasonable Cause Relief.
This option is intended for taxpayers who acted responsibly but were unable to meet their obligations because of circumstances beyond their control.
Examples may include:
- Fires and natural disasters
- Civil disturbances
- Death of an immediate family member
- Serious illness
- Unavoidable absence
- An inability to obtain necessary records
California taxpayers may be particularly familiar with this type of relief because major wildfires and other disasters have disrupted businesses and displaced families throughout the state.
The IRS evaluates reasonable cause requests based on each taxpayer’s specific facts and circumstances.
How to Request Penalty Relief
If the penalty is not automatically removed, taxpayers can still request relief.
The IRS says taxpayers should:
- Review any IRS notice carefully.
- Follow the instructions included in the notice.
- If necessary, submit Form 843, Claim for Refund and Request for Abatement.
Taxpayers should also keep documentation that supports their request, particularly when claiming reasonable cause because of illness, disasters, or other extraordinary circumstances.
Where to Learn More
The IRS maintains detailed information about penalty relief options and taxpayer eligibility on its penalties information page:
IRS Penalties and Relief Information
Information about requesting relief through Form 843 is available through:
The new automated system is expected to reduce the burden on taxpayers by eliminating the need for many people to request relief manually. However, taxpayers should still review IRS notices carefully and verify whether penalties have been removed.
For Californians facing economic hardship, natural disasters, or unexpected life events, understanding the IRS’s penalty relief options could potentially save significant amounts of money and reduce stress during tax season.
