IRS Launches Automatic Penalty Relief Program — What Ohio LLCs and Carriers Must Know

Effective this summer, the IRS is replacing the traditional First Time Abate (FTA) administrative waiver with a new systemic program called the Automatic Exemption from Penalty (AEP) (IR-2026-83, July 8, 2026). Under the old FTA system, a taxpayer had to contact the IRS — by phone, written statement, or Form 843 — to request penalty relief. Under AEP, the relief is applied automatically during return processing with no taxpayer action required. The IRS will then issue a notice confirming the relief was granted.

AEP applies to the following penalty types: failure to file, failure to pay, and failure to deposit. The program covers eligible original returns beginning with tax year 2025 annual returns and 2026 quarterly returns. AEP will fully replace FTA for returns with original due dates on or after January 1, 2027.

Eligible return types include Forms 1040, 1065, 1120, 940, 941, 943, 944, 945, and CT-1. To qualify, a taxpayer must have timely filed the same return type and paid any tax due for the three prior years (or 12 consecutive quarters for quarterly returns). Business filers must also not have had the failure-to-deposit penalty waived four or more times in that same look-back window.

Important transition note: During the summer 2026 phase-in, some qualifying taxpayers may still receive penalty notices if their returns were processed before AEP was available. In those cases, taxpayers can contact the IRS to request FTA manually until the transition is complete.

Ohio LLCs and S-corps that file Form 1065 or 1120-S annually, and that have a clean three-year filing and payment history, will no longer need to call the IRS to request penalty abatement if they miss a deadline or a deposit. The IRS will catch the issue automatically at processing and remove the penalty — then send a notice confirming it.

Motor carriers and trucking companies that file quarterly payroll returns (Form 941) or annual FUTA returns (Form 940) are covered under AEP as well. Owner-operators managing their own payroll who have been diligent payers over the prior 12 quarters will qualify. This is meaningful during busy freight seasons when a quarterly deposit or return can slip through the cracks.

What you still owe: AEP only prevents the assessment of the penalty itself. Taxes and interest still accrue and must be paid. Penalties not eligible for AEP (such as those on information returns, or certain event-driven filings like Form 706) are not covered — check with your tax professional on those.

Action item for Asal clients: If you receive a penalty notice this summer for a 2025 or 2026 quarterly return and believe you have a clean compliance history, call the IRS and ask whether AEP or FTA applies — the transition means some notices may still be issued manually before the system is fully live. Going forward, maintaining a consistent record of on-time filing and payment is the surest way to qualify for automatic relief.