New IRS Updates for Small Businesses: Automatic Penalty Relief, Trump Accounts, and a Stronger Business Tax Account
The IRS has rolled out several updates this summer that matter to small business owners — including a new automatic penalty-relief process, a gift-tax safe harbor for Trump Account contributions, and new features in the online Business Tax Account. Here is a plain-language summary of what changed.
For non-residents running a U.S. company: most of these updates apply to any business filing U.S. federal returns, regardless of where the owner lives. See the CPA Tips at the end for what to watch as a foreign owner.
1. Automatic Penalty Relief Is Replacing First Time Abate
The IRS is launching a new Automatic Exemption from Penalty (AEP) process that automatically grants relief to taxpayers with a clean compliance history. You qualify if you filed on time and paid any tax due for the three prior years — or for the 12 consecutive prior quarters, in the case of quarterly returns. Eligible filers automatically receive relief from common penalties such as failure-to-file, failure-to-pay, and failure-to-deposit, and the IRS sends a notice confirming it. AEP applies to eligible 2025 and 2026 quarterly returns and future periods. Importantly, the IRS will begin phasing out First Time Abate this summer, with AEP fully replacing it for eligible returns due on or after January 1, 2027. Businesses that do not qualify can still request relief based on reasonable cause. Note that information returns and one-off filings such as Form 706 (estate tax) and Form 709 (gift tax) generally are not eligible for AEP.
2. Safe Harbor for Trump Account Contributions
Treasury and the IRS have provided a gift-tax reporting safe harbor for certain contributions to Trump Accounts. Employers can contribute up to $2,500 per year to an employee's Trump Account (or the account of the employee's dependent); because employer contributions are generally excluded from the employee's taxable income, the safe harbor removes uncertainty around gift-tax reporting and makes participation mainly an administrative matter. For individual donors, contributions that meet the requirements will not trigger gift-tax reporting for that year. The details are in Revenue Procedure 2026-25.
3. The Business Tax Account Has New Features
- The Business Tax Account (BTA) is a free self-service tool for authorized business users to view and manage federal tax records online. New features include:
- Access to an expanded library of digital IRS notices.
- The ability to download an EIN verification notice — useful when a bank or payment processor asks for proof of your EIN.
- The ability to submit Offer in Compromise payments.
4. Allowable Living Expense Standards Updated for 2026
The IRS updated its Allowable Living Expense (Collection Financial) standards for 2026. These are the basic living-expense amounts a taxpayer can claim when resolving delinquent tax debt, and they are used to keep IRS collection determinations consistent and fair across taxpayers in similar areas.
5. Also Worth a Look
- Tips for businesses hiring seasonal or part-time employees.
- Final regulations naming certain Charitable Remainder Annuity Trust transactions as listed transactions.
Official IRS Sources
- Penalty Relief for Reasonable Cause
- Treasury, IRS provide safe harbor for certain Trump Account contributions
- Revenue Procedure 2026-25 (PDF)
- Sign up for a Trump Account (trumpaccounts.gov)
- Summer 2026: Expanded features for Business Tax Account
- Collection Financial Standards (Allowable Living Expense)
- Tips for businesses hiring seasonal or part-time employees
- Final regulations on certain Charitable Remainder Annuity Trusts
CPA Tips
Automatic penalty relief rewards a clean record — protect it. Because AEP depends on three years (or 12 quarters) of on-time filing and payment, the practical takeaway for any U.S. company is to keep every federal filing and deposit current. A single late payroll or excise deposit can disqualify you from automatic relief later.
For foreign-owned U.S. LLCs and corporations: the Business Tax Account's downloadable EIN verification notice is genuinely useful — banks, Stripe, and Amazon often ask for EIN proof, and this gives you an official document without calling the IRS. Access to BTA requires identity verification, which can be harder from abroad, so set it up early.
Trump Accounts are primarily an employee-benefit and family-planning item, not a business deduction strategy — treat the safe harbor as removing a reporting headache, not as creating a new tax break. If you employ U.S. staff and are considering contributions, review Revenue Procedure 2026-25 with your CPA first.