The Internal Revenue Service is introducing a new program that will help eligible small businesses and individual taxpayers with tax penalty relief. The program, the Automatic Exemption from Penalty , will launch later this summer, replacing the IRS’s First Time Abate relief process. It will apply to the 2025 tax period and 2026 quarterly returns, along with future tax periods.

A survey of small business owners conducted last year found that 39% have less than one month of operating expenses on hand. In addition, 51.3% said they would use emergency reserves within 48 hours to make payroll before paying upcoming taxes or purchasing unexpected large orders. With this slim margin, one can imagine how a disruption like a natural disaster or unexpected illness could impede a business’s ability to pay its taxes on time.

Historically, the IRS has supported individuals and small businesses during periods like this through the FTA, where they contact the agency in advance to request relief if they are late in filing or paying their taxes. The AEP differs in the fact that this relief is automatically applied to individuals that have filed their returns and paid their taxes on time for the three prior years (or 12 consecutive quarters for quarterly filers). Businesses also have to meet an additional eligibility requirement where the IRS has not had to waive the failure to deposit penalty four or more times during the prior three years (or 12 consecutive quarters).

If the AEP is applied for a business that applied late, paid taxes late, or did not make their deposit in a timely fashion, the IRS will send them a letter explaining that penalties were not applied because of their history of compliance. Businesses that did not receive the relief, but feel they should have can contact the IRS. In either case, the business will still need to pay any unpaid tax, interest, or other penalty outside of AEP relief.

Of course, the ideal thing is for businesses to file and pay their taxes in a timely fashion, but that is not always feasible. The AEP appears to be taking steps for businesses to receive relief and support in times of crises.