Automatic Penalty Exemption

Definition

A system introduced by the IRS in 2026 that automatically waives certain common penalties — such as failure-to-file, failure-to-pay, or failure-to-deposit — without requiring the taxpayer or their representative to submit a formal request. It replaced the need to invoke First Time Abatement for qualifying situations, streamlining relief for eligible taxpayers. CPAs must understand the qualifying thresholds to identify clients who fall outside automatic coverage and still require manual advocacy.