Universal Tax Professionals Analyzes New IRS Automatic Penalty Relief Program
News related to:Universal Tax Professionals · 2 min read
Universal Tax Professionals, a US tax firm specializing in expatriate and international taxation, has published an analysis of the Internal Revenue Service's new Automatic Exemption from Penalty (AEP) program and the limitations it imposes on taxpayers with international reporting obligations. The analysis, written by firm founder Josh Katz, CPA, delves into the specifics of who qualifies for the automatic relief and which penalties fall outside its scope.
The IRS announced the AEP program on July 8, 2026. It applies to eligible original returns beginning with tax year 2025 and 2026 quarterly returns. Eligibility generally requires three prior years of timely compliance, or 12 consecutive quarters for quarterly filers. For eligible original returns due on or after January 1, 2027, AEP will replace the First Time Abate program.
The AEP program does not apply to information return penalties, a significant limitation for Americans living abroad, US owners of foreign businesses, foreign-owned US businesses, and other internationally connected taxpayers. According to the IRS, failure to file a complete and correct Form 5471 by the due date may result in an initial $10,000 penalty, with continuation penalties after IRS notice of up to $50,000. The IRS states that failure to file a complete and correct Form 5472 may result in an initial $25,000 penalty, with further continuation penalties that have no maximum.
The full analysis is available on the firm's website, alongside its US expat tax services for individuals and businesses with cross-border filing obligations. Josh Katz, CPA leads the firm's international tax practice.
The release also provides details on the AEP program's application and the specific penalties it covers. AEP applies to certain failure-to-file, failure-to-pay, and failure-to-deposit penalties, without requiring a separate request from the taxpayer. The program is designed to provide relief to those who have generally maintained compliance over the past three years, or 12 quarters for quarterly filers.
However, the exclusion of information return penalties is a critical point for taxpayers with international reporting obligations. The IRS states that these penalties, which include those for Form 5471 and Form 5472, are not covered by the AEP program. Form 5471 is required for US shareholders of foreign corporations, while Form 5472 is needed for US persons who are parties to a transaction with a foreign corporation. Non-filing or incomplete filing of these forms can result in substantial penalties, as outlined above.
Taxpayers with international reporting obligations should not assume that the AEP program will protect them from these penalties. The exclusion of information return penalties means that taxpayers must still navigate the complexities of these forms and ensure their compliance, even if they meet the criteria for the AEP program.
The full analysis is available on the firm's website, providing detailed guidance and insights for taxpayers with international reporting obligations. Josh Katz, CPA, leads the firm's international tax practice, offering expertise and support to help taxpayers navigate these challenges.