Compliance
Automatic Exemption from Penalty (AEP): What You Need to Know
IRS introduces AEP, replacing First Time Abate — a big change in how penalty relief works for taxpayers with strong compliance records.
By NomadicTax Research Team • 5-8 min read • July 16, 2026
## What Is Automatic Exemption from Penalty (AEP)?
The IRS has launched a new program called **Automatic Exemption from Penalty (AEP)**, replacing the old **First Time Abate** relief. Under AEP, eligible taxpayers no longer need to request penalty relief — if you’ve been filing and paying on time for the past three years (or 12 consecutive quarters for quarterly filings), penalties for *failure to file*, *failure to pay*, and *failure to deposit* can be automatically waived. ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
## Who Qualifies?
You may qualify if:
- You’ve filed original returns for the past three years on time;
- You’ve paid any tax owed for those years;
- For quarterly filers, you’re compliant over the last 12 consecutive quarters. ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
Important: AEP does **not** apply to information returns or returns tied to infrequent life events like estate (Form 706) or gift (Form 709) returns. ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
## When Does It Take Effect?
- The new process will start in **summer 2026**, applied to tax year 2025 and 2026 quarterly returns and beyond. ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
- First Time Abate will be phased out — eventually replaced entirely by AEP after January 1, 2027. ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
## What You Should Do
- **Check your compliance history**: If you’ve been filing and paying on time, you probably qualify automatically.
- **No action needed**: If you’re eligible, the IRS will apply AEP and send a notice confirming relief automatically. ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
- If you don’t qualify, you can still request **reasonable cause** relief with appropriate documentation. ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
## Practical Examples
**Example 1:** You’re an individual taxpayer who filed correctly in 2022, 2023, and 2024, and paid any taxes due. You file your 2025 return on time. Under AEP, any penalties for late filing or payment won’t be assessed — no request needed.
**Example 2:** You run a quarterly business and have deposited payroll taxes on time for the past 12 quarters, and filed quarterly returns on time. When applicable, the IRS will automatically waive penalties for any late payments/deposits in eligible filings.
## Why This Changes the Game
- More **certainty** for taxpayers who always do the right thing — no more formal request paperwork.
- Less **delay and administrative burden** both for taxpayers and for the IRS.
- Touches a wide range of taxpayers — individuals and businesses — under the same compliance standards.
> AEP reflects the IRS commitment to fairness and reducing unnecessary burdens. It streamlines relief for those whose track record shows responsible tax behavior.
**Category:** Compliance
**Actionable Tip:** Review your last 3 years (or quarters) of filings/payments now so you know whether you'll be covered once AEP begins rolling out in summer 2026.