Michael C. Vincent: How was the drive in — you look like you have a take ready to detonate.
Hope Sterling: I literally do, yes, I've been stewing on this since yesterday — okay, I'm handing you a number and I need a reaction: twenty-five years.
Michael C. Vincent: Twenty-five years of what?
Hope Sterling: Of the IRS running a penalty relief program — First Time Abatement, FTA, born in 2001 — that covered failure-to-file, failure-to-pay, failure-to-deposit penalties, and the only way to get it was to already know it existed, call them or send in a Form 843, and ask. That's it. Ask or lose the money.
Michael C. Vincent: Now, the record is murkier than that — Form 843 was always available, practitioners knew. But unrepresented taxpayers? The ones who couldn't afford a professional? They were invisible to the system.
Hope Sterling: Which is exactly — wait, that's kind of worse, isn't it? Like, the relief existed but only if you could afford someone who knew to ask for it.
Michael C. Vincent: That's the design failure dressed up as policy. And it ran until July 8th, 2026, when the IRS issued IR-2026-83 and announced the Automatic Exemption from Penalty — the AEP. Frank Bisignano's words: consistency and simplicity.
Hope Sterling: Consistency and simplicity — from the agency that made you fill out a form to claim relief they never told you about. I'm sorry, that framing is doing a LOT of work.
Michael C. Vincent: Fair. But set aside the framing for a moment — because the mechanics here are actually worth understanding before we criticize the language. The core shift is this: the IRS used to wait for you to raise your hand. Now it looks for you. That's the whole thing.
Hope Sterling: Wait — it just... finds you? Like, without you doing anything?
Michael C. Vincent: Think of it like a store coupon. Old system: you had to bring the coupon in yourself, know it existed, know to ask. AEP is the register scanning for the discount automatically at checkout. You qualify, it applies, you get a notice confirming it. Form 843 — never touched.
Hope Sterling: Okay that's — no, I actually get that, that's a clean way to put it. But like, who qualifies? Because 'automatic' can mean a lot of things.
Michael C. Vincent: Three prior years of clean compliance — timely filing, timely paying — for annual filers. Quarterly filers need 12 consecutive clean quarters. IRS systems check that during processing, apply the relief, send you a notice. No action required.
Hope Sterling: Okay but here's where I want to pump the brakes a little — because 'automatic' still has a catch, right? Like, estimated tax penalties? Still excluded. Which means gig workers, freelancers, the whole 1099 crowd — they're still in the old chaos.
Michael C. Vincent: That's exactly where the coupon analogy breaks down, yes. Failure-to-file, failure-to-pay, failure-to-deposit — AEP covers those. Estimated tax penalties? Still excluded, same as they were under FTA. The phase-in starts summer 2026 for 2025 returns — but that carve-out doesn't change in January 2027 when full implementation hits.
Hope Sterling: And Erin Collins — she went to the AICPA conference in November 2025 and basically had to publicly pressure them into doing this, and even her win has this gap sitting in it.
Michael C. Vincent: She called it a long-awaited taxpayer win. And it is. But you're right — the people who arguably need systemic relief most, the ones with irregular income who trip estimated tax penalties — the register still doesn't scan for their coupon.
Hope Sterling: And that gap is actually — wait, that's where my hot take lands, because 'automatic' just moved the invisible labor. It didn't erase it.
Michael C. Vincent: Go on.
Hope Sterling: Picture a tax preparer, October 2026, client hands them a 2025 return that should've qualified for AEP. Clean three years, timely filing, the whole thing. The notice never shows up. No appeal automatically fires. The IRS system just... didn't trigger it. The preparer has to catch that, recognize what didn't happen, and figure out what to do — and Spidell, Accounting Today, Journal of Accountancy, they have all flagged this exact scenario as an open question right now.
Michael C. Vincent: And that work — catching a non-event — that's unbillable. Nobody invoices a client for 'I noticed the system didn't do what it was supposed to.'
Hope Sterling: Exactly! It used to be a billable FTA request — Form 843, you prep it, you charge for it. Now Form 843 is basically a historical artifact for this purpose, but the checking-whether-AEP-actually-fired part? That's just quality control. Unpaid quality control for the IRS.
Michael C. Vincent: Now, Erin Collins called AEP a long-awaited taxpayer win — and for unrepresented taxpayers, she's right. The person who never knew to file Form 843 in 2018? They're protected now. But the transitional window we're sitting in right now, summer through January 1st 2027, both the old FTA process and AEP can be running in parallel depending on the return type. Which means practitioners can't fully retire the old muscle memory yet.
Hope Sterling: So the win is real — I'll take the partial credit — but it just redistributed who carries the confusion.
Michael C. Vincent: That's the heart of it.
Hope Sterling: And — okay, I'll just flag this because we need to come back to it — there's a whole other relief pathway, reasonable cause, that might actually get harder to find now that AEP exists. Like, what happens to that door when everyone assumes the automatic one already opened?
Michael C. Vincent: That door — reasonable cause — that's exactly where I want to land. Because Collins didn't just praise AEP in that blog post. She explicitly told the IRS to preserve independent reasonable cause relief pathways alongside it. Why does she need to say that?
Hope Sterling: Wait — she said that in the same breath as 'long-awaited taxpayer win'?
Michael C. Vincent: Same endorsement. Which tells you something. Reasonable cause is a separate pathway entirely — distinct from FTA, distinct from AEP — where a taxpayer argues their noncompliance was genuinely beyond their control. Medical crisis. Natural disaster. Death in the family. It requires individualized judgment, not a criteria check.
Hope Sterling: And AEP's eligibility gate — clean three-year history — structurally locks that person out. Like, the person who had one catastrophic year is exactly who doesn't qualify.
Michael C. Vincent: That's the structural risk. AEP is a win for the already-compliant taxpayer. But the person with one bad year — one human catastrophe — their only door was always reasonable cause. And now, I mean — if AEP becomes the mental model for what penalty relief even is, that harder individualized path gets even more invisible than FTA ever was.
Hope Sterling: Because everyone assumes the automatic system already handled it.
Michael C. Vincent: Exactly so. Collins saw that coming. That's why she said what she said.
Hope Sterling: The calibrated take is — AEP fixed the access failure for people who were already doing everything right. But it didn't touch the mercy question. And might have actually made mercy harder to find.
Michael C. Vincent: That's the defensible version. IR-2026-83 is a genuine correction. But Collins warning the IRS to protect reasonable cause relief in the same announcement she called a win — that's not a footnote. That's the whole caution.
Hope Sterling: Fine. I'll concede it's not a gift — it's a bug fix. A twenty-five year old bug fix. But like, that's almost the more disturbing framing, right? Because if FTA was a bug sitting there since 2001 and it took Erin Collins standing at an AICPA podium in November 2025 to get it onto the to-do list — I mean, what else is just... quietly sitting there? What other relief mechanism exists right now that nobody's filing a Form 843 for because they don't know to ask?
Michael C. Vincent: That is the question the IRS probably doesn't want asked. And starting January 1st, 2027 — full implementation, every eligible return with an original due date on or after that date — AEP is the floor. That's not hypothetical. But you're right that it's a floor built over a foundation nobody inspected for two decades. The mechanism worked only for people who knew it existed. That's not design. That's luck dressed up as policy.
Hope Sterling: Luck dressed up as policy. I'm writing that down.
Michael C. Vincent: Well, you can bill me for the phrase later. But that's where I land on this — the AEP is a genuine correction. IR-2026-83 is real, the January 2027 date is a deadline the IRS gave itself, and Bisignano and Collins both said so in public. But the fix doesn't answer the deeper thing. It just proves the deeper thing was possible all along.
Hope Sterling: Yeah. No — that actually lands. That's a good place to stop.
