Compliance
Automatic Exemption from Penalties: What You Need to Know
The IRS has launched a new **Automatic Exemption from Penalty (AEP)** replacing First Time Abate (FTA), giving relief to timely filers—no request needed.
By NomadicTax Research Team • 6 min read • August 30, 2026
## Understanding the Automatic Exemption from Penalty (AEP)
AEP is a newly introduced IRS program that becomes effective **summer 2026**, providing automatic relief from certain penalties for taxpayers with a history of filing and paying on time.([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai)) This initiative **replaces the First Time Abate (FTA)** program for eligible returns with original due dates on or after **January 1, 2027**, though it also applies to qualifying 2025 returns and 2026 quarterly returns.([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
## Key Features & Eligibility
| Feature | Detail |
|---|---|
| Penalties Covered | Failure-to-file, failure-to-pay; plus failure-to-deposit for business taxpayers.([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai)) |
| Who Qualifies | Individuals must have timely filed and paid for the **3 prior years**; quarterly filers need 12 straight compliant quarters.([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai)) |
| Automatic Process | IRS will identify eligible taxpayers without needing a request; a notice will be sent when relief is applied.([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai)) |
| Ineligible | Information returns, estate/gift tax returns (Forms 706 & 709), and other infrequent event returns typically excluded.([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai)) |
## Implications for Tax Planning & Compliance
- **Reduced Burden**: Taxpayers with clean records won't need to apply or perfect paperwork to avoid penalties.
- **Risk Management**: Those who fail to receive the IRS’ notice should still verify eligibility and pursue **FTA or reasonable cause relief** if needed.
- **Business Accounting**: Businesses must ensure they meet deposit requirements and record keeping for payroll, deposit, and payment history.
## Practical Examples
- *Individual example*: You've filed and paid on time for **tax years 2022–2024**, so your 2025 tax return (filed in 2026) would be eligible for AEP.
- *Business example*: You’re a business with 12 consecutive quarterly compliant filings from Q1 2024–Q4 2026; you may benefit from relief on failure-to-deposit penalties under AEP.
## What You Should Do Now
1. Review your filing & payment history for the past 3 years (or 12 quarters for business) to determine eligibility.
2. Continue meeting filing and payment deadlines — missing one can disqualify AEP eligibility.
3. Stay alert: if notified of penalties, check whether the notice indicates AEP was applied. If not, consider contacting the IRS.
4. Consult a tax professional if you’re unsure which penalty relief applies to your situation.
## Where to Learn More
Visit IRS.gov and search **IR-2026-83** for the official announcement. Publications tax tip pages also cover **“Tips for Taxpayers Who May Qualify for Automatic Penalty Relief.”**([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))