IRS to Automatically Waive Late-Filing Penalties — But There’s a Catch
The IRS announced it will begin automatically granting first-time penalty abatements (FTAs) to roughly 1 million taxpayers each year, starting with 2025 tax returns filed by April 15, 2026.
Until now, this relief existed only in the IRS’s Internal Revenue Manual — meaning taxpayers (or their advisors) had to know to ask for it. Many didn’t, especially lower-income filers.
Under the new approach, eligible taxpayers who file late will receive a notice informing them that:
Their return was late
The penalty has been waived
And why they qualified
No phone calls. No requests. No paperwork.
Who Qualifies?
To receive an automatic FTA, taxpayers must:
Have no unreversed penalties in the prior three tax years
(Estimated tax penalties don’t count)
Why This Isn’t Always a Win-Win
While this change improves access and transparency, it may have unintended consequences.
The first-time abatement is a one-time benefit within a three-year lookback period. Automatically using it for:
A minor late-filing penalty in Year 1
It could mean it’s no longer available in a later year when:
- income is higher
- penalties are significantly larger
- or circumstances are more complex
In some cases, a taxpayer might reasonably prefer to pay a small penalty now to preserve the FTA for a future year — a choice that automation removes.
Bottom Line
This is a meaningful step toward fairness and efficiency, but like many automated solutions, it trades flexibility for simplicity.
For taxpayers — and especially advisors — it’s a reminder that relief applied automatically isn’t always relief applied optimally.
See the IRS Penalties eligible for FTA HERE https://www.irs.gov/payments/administrative-penalty-relief#eligible
Next steps
If you are unsure how this upcoming automatic penalty relief might affect you, or if you have recently filed late or received a penalty notice, it may be worth a detailed review of your position.
A careful look at your last few years of returns, payments, and notices can clarify:
- Whether you appear to meet the IRS’s FTA criteria.
- Whether other forms of penalty relief, such as reasonable cause, might be appropriate.
- What you can do now to put yourself in the best position before the 2025 return is due.
If you would like tailored guidance as an American living abroad, SmileTax is here to help you understand your options and move forward with clarity and confidence.