-- 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 program and a limitation that affects taxpayers with international reporting obligations. The IRS automatic penalty relief analysis, written by firm founder Josh Katz, CPA, examines who qualifies for the automatic relief and which penalties fall outside it.
The IRS announced Automatic Exemption from Penalty, known as AEP, on July 8, 2026. It applies to eligible original returns beginning with tax year 2025 and 2026 quarterly returns, and provides relief from certain failure-to-file, failure-to-pay and failure-to-deposit penalties without a separate request from the taxpayer. 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 replaces the First Time Abate program.
The IRS states that AEP does not apply to information return penalties. The analysis focuses on what that exclusion means for Americans living abroad, US owners of foreign businesses, foreign-owned US businesses and other internationally connected taxpayers, many of whom must file information returns such as Form 5471 and Form 5472. 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 analysis also distinguishes AEP from reasonable-cause relief. Taxpayers whose information return penalties are not covered by the automatic program may still request relief where they acted in good faith, although that relief is not automatic and depends on the specific penalty and the taxpayer's facts and circumstances.
"The new automatic penalty-relief program is a significant change, but internationally connected taxpayers need to understand its limitations," said Josh Katz, CPA, founder of Universal Tax Professionals. "The IRS specifically excludes information return penalties from AEP, so taxpayers with international reporting obligations should not assume that forms such as Form 5471 or Form 5472 are protected by the new automatic relief."
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.
About Universal Tax Professionals
Universal Tax Professionals is a US-based tax firm specializing in expatriate and international taxation. The firm helps Americans living abroad, foreign nationals and internationally connected businesses navigate US tax compliance, reporting requirements and cross-border tax planning.
Contact Info:
Name: Josh Katz, CPA
Email: Send Email
Organization: Universal Tax Professionals
Phone: +1 (216) 430-0338
Website: https://www.universaltaxprofessionals.com
Release ID: 89203622
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