IRS Introduces Automatic Penalty Relief Beginning in Summer 2026
The IRS is replacing its long-standing First Time Abate (FTA) penalty relief program with a new Automatic Exemption from Penalty (AEP) beginning in Summer 2026. Under the new program, eligible taxpayers who have maintained a strong history of tax compliance will no longer need to request relief if they file or pay late. Instead, the IRS will automatically waive certain penalties for taxpayers who have timely filed returns and paid their taxes for the previous three years (or 12 consecutive quarters for quarterly filers).
AEP will apply to 2025 tax year returns and later, as well as 2026 quarterly returns and beyond, for eligible Forms 1040, 1065, 1120, and several employment tax returns. Unlike the current FTA process—which requires taxpayers to contact the IRS after a penalty has been assessed—AEP prevents eligible penalties from being assessed in the first place. Taxpayers who qualify will receive a notice confirming that penalty relief was automatically applied, and no further action will be required.
The relief generally covers penalties for failure to file, failure to pay, and failure to deposit, provided the taxpayer meets the IRS’s compliance requirements. Taxpayers who do not qualify for AEP may still request penalty relief based on reasonable cause. Although qualifying penalties may be waived, taxpayers remain responsible for paying any tax due, applicable interest, and any penalties not covered under the AEP program. If you have questions about whether you may qualify for automatic penalty relief or need assistance with an IRS penalty notice, don’t hesitate to contact us.
For more information: Administrative penalty relief | Internal Revenue Service
Minnesota Finalizes Earned Sick and Safe Time Rules
The Minnesota Department of Labor and Industry has adopted final administrative rules implementing the state’s Earned Sick and Safe Time (ESST) law, providing additional guidance for employers on employee eligibility, accrual methods, and compliance responsibilities.
Under the new rules, employers must make a good-faith determination of whether an employee is expected to work at least 80 hours in Minnesota during the year. Eligible employees must receive earned sick and safe time in accordance with state law. The rules also clarify how hours are counted for employees who work both inside and outside Minnesota, including remote employees, whose work location is based on where they are physically performing their work.
In addition, employers must provide written notice before changing how earned sick and safe time is accrued or advanced, with most changes taking effect at the beginning of the next accrual year. The rules also establish guidelines for requesting documentation when there is a reasonable suspicion of misuse while reaffirming that employees cannot be denied leave for qualifying reasons based solely on suspected misuse. Minnesota employers should review their paid leave policies and payroll practices to ensure they comply with the finalized ESST requirements.
FASB Considers Improvements to Accounting for Business Acquisitions
The Financial Accounting Standards Board (FASB) is evaluating whether to update accounting guidance for acquisitions after stakeholders raised concerns that similar transactions can produce significantly different financial reporting results. Currently, acquisitions are accounted for either as a business combination or an asset acquisition, with each approach following different accounting rules. These differences can affect how assets, liabilities, transaction costs, goodwill, and future earnings are reported, making it more difficult for investors to compare companies that have completed similar transactions.
Feedback received by FASB indicates that many stakeholders would like additional guidance—or greater alignment—between the two accounting models, particularly for areas such as research and development assets, contingent consideration, and purchase accounting. Some have also suggested extending certain reporting provisions, such as the one-year measurement period available for business combinations, to asset acquisitions.
No changes have been proposed at this time. FASB is currently reviewing stakeholder feedback as part of its agenda-setting process to determine whether a formal standard-setting project is warranted. Businesses involved in mergers, acquisitions, or strategic investments should continue to monitor these developments, as any future changes could affect transaction planning and financial reporting.
IRS Finalizes Disclosure Rules for Certain Charitable Remainder Annuity Trust Transactions
The IRS has finalized regulations requiring additional reporting for certain Charitable Remainder Annuity Trust (CRAT) transactions that it considers abusive tax avoidance arrangements. The new rule became effective July 9, 2026.
According to the IRS, some taxpayers have used CRATs in combination with single premium immediate annuities to avoid recognizing taxable ordinary income or capital gains. Under the final regulations, these and substantially similar transactions are now classified as listed transactions, requiring disclosure to the IRS by certain participants and material advisors.
Taxpayers involved in these reportable transactions who fail to meet the disclosure requirements may be subject to IRS penalties. Organizations serving solely as the charitable remainder beneficiary are not subject to these reporting obligations. The IRS emphasized that the rule is intended to strengthen enforcement against abusive tax avoidance strategies while providing a clear regulatory framework for identifying these transactions.
U.S. Judge Rejects Musk’s Bid to Set Aside Twitter Fraud Verdict
A federal judge has upheld a jury verdict finding that Elon Musk defrauded Twitter investors during his 2022 acquisition of the company. The court rejected Musk’s request to overturn the verdict and denied his effort to decertify the investor class, while also granting the plaintiffs’ request for prejudgment interest.
The jury previously found that certain public statements made by Musk about Twitter’s bot and spam accounts were misleading and improperly influenced the company’s stock price during the acquisition process. Although the judge ruled that one of the challenged posts did not result in market harm, the overall verdict remains in place. Damages in the case have been estimated at approximately $2.5 billion, though the final amount has yet to be determined.
