New IRS Automatic Penalty Relief Leaves Form 5471 and 5472 Risks Intact

As of September 17, a new analysis from Universal Tax Professionals highlights an important limit in the IRS’s Automatic Exemption from Penalty program, or AEP: it does not cover information return penalties tied to certain international filings. That matters for taxpayers with cross-border reporting obligations who may assume the IRS’s new automatic relief reaches more forms than it does.

The IRS announced AEP on July 8, 2026, and the program applies to eligible original returns beginning with tax year 2025 and to 2026 quarterly returns, according to AOL’s summary of the announcement. The program automatically waives certain penalties for eligible taxpayers, replacing the older first-time abate process for eligible original returns due on or after January 1, 2027, according to the Universal Tax Professionals analysis published by Markets Insider.

What Changed

AEP is designed to provide automatic relief from some common penalties without requiring a separate request. The covered categories are failure-to-file, failure-to-pay and failure-to-deposit penalties, according to AOL’s report on the IRS announcement.

Eligibility generally requires a history of timely compliance. Universal Tax Professionals said that means three prior years of timely compliance for most filers, or 12 consecutive quarters for quarterly filers. AOL similarly reported that taxpayers qualify if they have a history of timely filing and paying any tax due in the three prior years.

The key limitation is that AEP does not apply to information return penalties. AOL noted that information returns and returns filed only because of specific transactions or infrequent events are not eligible. Universal Tax Professionals’ analysis focused on what that exclusion means for taxpayers with international reporting obligations.

Who Is Affected

The gap matters most for Americans living abroad, U.S. owners of foreign businesses, foreign-owned U.S. businesses and other internationally connected taxpayers. Those groups often face separate reporting rules that carry penalties even when little or no tax is due.

The analysis specifically pointed to Form 5471 and Form 5472. According to the IRS descriptions cited in the analysis, failure to file a complete and correct Form 5471 by the due date may trigger an initial $10,000 penalty, and continuation penalties after IRS notice can raise the total by as much as $50,000. For Form 5472, the analysis said failure to file a complete and correct form may trigger an initial $25,000 penalty, with additional continuation penalties that have no maximum.

That distinction is important because AEP may help with some late-filing or late-payment penalties on an eligible original return, while leaving a separate information return penalty fully in place. In practice, a taxpayer could hear that penalties are now “automatic[ally]” waived and still face substantial exposure if an international information return is missing or incomplete.

“The IRS specifically excludes information return penalties from AEP,” Josh Katz, CPA, said.

The After-Tax Math

For affluent households and business owners, the financial impact can be material because international reporting penalties are fixed-dollar amounts rather than percentages of tax due.

Example: suppose a business owner qualifies for AEP because prior returns were timely for three years, but an international filing package omits a required Form 5472. The taxpayer may still receive automatic relief for a covered failure-to-file or failure-to-pay penalty on the main return, yet the separate Form 5472 penalty could begin at $25,000. If the issue continues after IRS notice, the exposure could rise further.

Example: a U.S. shareholder with a foreign corporation may think a clean compliance history protects all late or incomplete filings. Under the limits described in the analysis, AEP would not shield a Form 5471 penalty, which may start at $10,000 and increase after notice.

Moves to Discuss With Your Advisor

Households and owners with cross-border activity may want to separate two questions: whether the underlying tax return qualifies for automatic relief, and whether any attached or related international information returns fall outside that relief.

• Confirm whether a filing is an original return eligible for AEP.
• Review whether any information returns, including Form 5471 or Form 5472, are required.
• Check whether prior-year compliance supports AEP eligibility.
• If an information return issue exists, discuss whether reasonable-cause relief may be available based on the facts and circumstances.

Universal Tax Professionals said the analysis distinguishes AEP from reasonable-cause relief. That matters because taxpayers whose information return penalties are excluded from the automatic program may still request relief if they acted in good faith, but that outcome is not automatic and depends on the specific penalty and the taxpayer’s circumstances.

What to Watch

The next milestone for many filers is the 2027 filing season. AOL reported that the official deadline to file 2026 federal income tax returns in 2027 is April 15, 2027. For eligible original returns due on or after January 1, 2027, Universal Tax Professionals said AEP replaces the first-time abate program.

What remains worth watching is how the IRS communicates the boundary between covered penalties and excluded information return penalties. For higher-income households with foreign assets, foreign business interests or foreign-owned U.S. entities, that boundary may determine whether “automatic” relief means modest administrative help or little protection against the largest reporting penalties in the file.

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