Compliance
Automatic Exemption from Penalty (AEP): IRS’s New Relief Program for Compliant Taxpayers
IRS has introduced the Automatic Exemption from Penalty (AEP), a new system to grant penalty relief automatically to taxpayers with a strong history of filing and paying on time—no need to request First Time Abate anymore.
By NomadicTax Research Team • 5-8 min read • August 5, 2026
## What is AEP?
The **Automatic Exemption from Penalty (AEP)** is a new relief program announced by the IRS on **July 8, 2026**. Starting in summer 2026, AEP will replace the First Time Abate (FTA) program for taxpayers who have demonstrated a consistent record of compliance. ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
## Who Qualifies?
- Taxpayers who have **filed returns and paid any tax due on time** for each of the **three prior years**, or—if dealing with quarterly returns—have done so over **12 consecutive quarters**. ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
- The program applies to **original returns**, including those for **tax years 2025 and 2026**, and **future periods**. Returns filed in these tax years are automatically checked for eligibility. ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
## What Penalties Are Covered?
AEP will allow relief from penalties for:
- Failure to file
- Failure to pay
- Failure to deposit
Taxpayers do **not** need to request relief: if eligible, the IRS will grant it automatically and send a notice confirming relief has been applied. ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
## What’s Changing from First Time Abate?
| Aspect | First Time Abate (Old) | AEP (New) |
|---|---|---|
| Eligibility period | One instance in prior 3 years | Must have all three years clean or 12 consecutive quarters clean |
| Application needed | Yes—taxpayer must request | No—automatic if criteria met |
| Effective for most returns | Yes | Yes, for returns with original due dates on or after **Jan 1, 2027**; during transition some returns 2025–2026 may still receive FTA notices. ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))|
## Example
Emily has filed and paid timely for 2023, 2024, and 2025. She forgets to pay one quarterly estimated tax in 2026, but otherwise complies. Under AEP, she qualifies and won’t get assessed the failure-to-pay penalty for that obligation, if all other criteria are met. She doesn’t need to request relief—it will be applied. However, she still owes the tax plus interest.
If instead Frank missed payments or filings in 2024, he’s out of the window; he doesn’t qualify under AEP but may still request relief under the previous FTA if within transition or using reasonable cause.
## What You Should Do Now
- Check your filing history for 2023-2025. Are you clean on timely filing and payments?
- If yes, you may qualify—no action needed, just file correctly and the IRS will automatically apply relief.
- If not, and you have a good reason, prepare documentation to request relief under **reasonable cause** or the retiring FTA program.
- Keep documentation of payments and filings—dates are crucial.
## Bottom line
The new AEP program reduces burdens and uncertainties—people who follow the rules shouldn’t fear tiny missteps leading to penalties. By simplifying process and making compliance work for taxpayers, it reflects a shift toward **fairness and administrative efficiency**.