Anabelle Davidow / Article / 1 Jan 2026

For years, many employers relied on one reassuring phrase when navigating complex IRS reporting requirements: good-faith relief. If mistakes were made, but an honest effort to comply could be demonstrated, penalties were often reduced or avoided altogether. That era is quietly coming to an end.

Today, the Internal Revenue Service is taking a noticeably stricter approach to compliance enforcement. While good-faith relief has not disappeared entirely, the standard for qualifying has tightened significantly. Employers who assume leniency will still be granted simply because they “tried” are finding themselves exposed to penalties, notices, and increased scrutiny.

Understanding how the IRS now evaluates compliance, and what good-faith truly means in today’s regulatory climate, is essential for employers who want to avoid costly surprises.

What Is Good-Faith Relief?

Good-faith relief was designed to give employers some flexibility when complying with complex reporting obligations, particularly during periods of regulatory change. Historically, if an employer could show they made a sincere effort to meet filing requirements, such as submitting forms on time with minor errors, the IRS often waived or reduced penalties.

This approach acknowledged that compliance regulations evolve, systems change, and honest mistakes happen.

But the intent was never to excuse ongoing errors, repeated late filings, or incomplete data year after year.

Why Good-Faith Relief Is Shrinking

Several factors have contributed to the IRS’s increasingly firm stance on compliance.

1. Increased IRS Funding and Enforcement Capacity
   With expanded funding and staffing, the IRS now has greater resources to review filings, match data across systems, and issue enforcement notices. What once may have slipped through the cracks is now far more likely to be flagged.
2. Advanced Data Matching and Automation
   Modern IRS systems cross-check employer filings against employee records, Social Security data, and other federal databases. Errors that previously went unnoticed are now detected quickly, and consistently.
3. Clearer Guidance Leaves Less Room for Error
   The IRS has provided years of guidance on filing requirements, deadlines, and correction procedures. Employers are increasingly expected to “know the rules” and implement processes that ensure accuracy.

As a result, good-faith relief is no longer viewed as a blanket safety net, it is evaluated narrowly and selectively.

How the IRS Is Evaluating Compliance Today

When reviewing filings or assessing penalties, the IRS now looks beyond intent and focuses on execution. Several key questions guide their evaluation:

• Was the employer timely?
  Late filings immediately weaken a good-faith argument. Even when forms are eventually submitted, delays suggest inadequate compliance controls.
• Were errors isolated or systemic?
  A single typo is treated very differently than widespread inaccuracies across multiple forms. Repeated mistakes signal process failures, not good-faith effort.
• Did the employer correct issues promptly?
  The IRS expects swift corrective action when errors are identified. Ignoring notices or delaying responses significantly reduces the likelihood of relief.
• Has the employer shown a pattern of compliance?
  Employers with a consistent history of accurate, timely filings are more likely to receive consideration than those with recurring issues.

In short, good faith is now measured by structure, consistency, and accountability, not intentions alone.

Common Misconceptions Employers Still Have

Despite shifting enforcement standards, many employers continue to operate under outdated assumptions.

• “We filed something, so we should be fine.”
  Incomplete or inaccurate filings often trigger penalties just as quickly as missing forms.
• “We’ve never been penalized before.”
  Past leniency does not guarantee future relief. The IRS increasingly views repeat errors as preventable.
• “Our vendor handled it.”
  Employers remain legally responsible for their filings, even when using third-party providers.

These misconceptions can lead to a false sense of security, one that often disappears when an IRS notice arrives.

The Real Risk of Relying on Good-Faith Alone

When employers assume good-faith relief will protect them, they often delay action, postpone data cleanup, or deprioritize compliance planning. This approach carries real financial and operational risks:

• Escalating penalties that increase the longer issues remain unresolved
• Administrative strain caused by responding to IRS notices and audits
• Reputational damage with employees when corrections affect individual tax records
• Unexpected costs that far exceed proactive compliance investments

What once seemed like a manageable risk has become a significant liability.

What Demonstrates Good Faith in Today’s Environment

Although the bar is higher, employers can still position themselves favorably by adopting a more disciplined approach to compliance.

• Documented Processes
  Clear internal procedures for data collection, review, and submission demonstrate intentional compliance efforts.
• Timely Filing and Furnishing
  Meeting deadlines remains one of the strongest indicators of good faith.
• Accurate Data Management
  Clean employee data, consistent records, and proper validation reduce systemic errors.
• Prompt Corrections
  When mistakes occur, acting quickly, and documenting corrective steps, matters.
• Expert Oversight
  Engaging experienced compliance professionals shows a proactive commitment to accuracy and regulatory adherence.

Good faith today is less about explanation and more about evidence.

Why This Matters Now More Than Ever

The shrinking scope of good-faith relief reflects a broader trend: compliance expectations are rising, not relaxing. As enforcement intensifies, employers who fail to adapt may find themselves paying for assumptions made years ago.

For organizations navigating complex reporting obligations, the question is no longer “Will the IRS understand?”, it’s “Can we prove we did this correctly?”

Final Thoughts

Good-faith relief hasn’t disappeared, but it is no longer a fallback strategy. The IRS now expects employers to demonstrate consistency, preparedness, and accountability at every stage of the compliance process.

Employers who recognize this shift early, and take steps to strengthen their compliance infrastructure, are far better positioned to avoid penalties, reduce risk, and maintain peace of mind.

In today’s regulatory environment, good faith is no longer about trying, it’s about doing it right.

If you have questions or need help navigating today’s stricter IRS compliance standards, reach out to ACA Compliance Solution Services at (818) 330-3900 or This email address is being protected from spambots. You need JavaScript enabled to view it. to get clear answers and expert support before penalties become a problem.