Overview of the New AEP Program
Starting summer 2026, the IRS is phasing in the Automatic Exemption from Penalty (AEP), which will replace the First-Time Abate (FTA) program for eligible original returns with due dates on or after January 1, 2027. During the transition period, AEP will apply to original tax-year 2025 returns and 2026 quarterly returns. (irs.gov)
Taxpayers qualify if, for the three prior years (or 12 consecutive quarters for business/quarterly returns), they:
- Filed required returns on time;
- Paid taxes due on time;
- Made required deposits on time (for businesses); and
- Did not receive certain deposit penalties repeatedly. (irs.gov)
The relief covers failures to file, pay, or deposit—but not all penalties, such as accuracy-related penalties, daily delinquency, information-return penalties, or event-based/infrequent returns like estate (Form 706) and gift (Form 709) returns. (irs.gov)
Why This is Important
- Lower burden: Previously, taxpayers had to be aware of First-Time Abate and request it; now, relief is automatic if eligibility criteria are met. (irs.gov)
- Fairness: Everyone with a good compliance history gets the same benefit—whether self-filing or represented.
- Service improvements: IRS will send a notice confirming when the relief applies; less letters, calls, and uncertainty. (irs.gov)
Practical Examples
| Scenario | Eligibility Criteria Met | AEP Applies? |
|---|---|---|
| Individual filed timely for 2022-2024, paid taxes due, then 2025 file was late but meets criteria | Yes | Yes—no failure-to-file or failure-to-pay penalties assessed for 2025 return. |
| Business with 12 consecutive quarterly filings and timely deposits, but in one quarter missed deposit | That one fails the deposit test | No—business must meet deposit history criteria. |
| Late estate tax return for Form 706 | Infrequent/event-based return | No—Form 706 generally excluded under the rules. |
What You Should Do
- Review your compliance history for the past three years (or 12 quarters) now
- Make sure required returns are filed and taxes paid/deposits made
- File potential First-Time Abate requests if an eligible return from 2024 or any pre-AEP period was penalized and you qualify.
- Keep documentation showing timely filings/payments in past years in case IRS requests.
Summary
AEP represents a meaningful shift in IRS penalty relief: automatic, equitable, and easier for well-behaved taxpayers. If you've been up to date with your filings and payments, you may benefit without lifting a finger—and it’s well worth checking if you qualify.