Compliance
Automatic Penalty Relief 2026: Replace First Time Abate with AEP
In summer 2026, IRS will roll out the Automatic Exemption from Penalty (AEP), eliminating the need to request First Time Abate if you’ve consistently complied.
By NomadicTax Research Team • 5-8 min read • August 11, 2026
## What is Automatic Exemption from Penalty (AEP)?
- Under the new IRS policy, **Automatic Exemption from Penalty (AEP)** provides **automatic relief** from certain penalties for taxpayers who have filed and paid on time in each of the **three prior years** (or 12 consecutive quarters for quarterly filers) ([irs.gov](https://www.irs.gov/payments/administrative-penalty-relief?campaign=home&redirect_count=1&redirect_id=e5a24f9b-8f01-4e82-b50c-a7f2c95d5a4a&utm_source=openai)).
- Qualifying taxpayers will **no longer need to request** what was formerly known as **First Time Abate (FTA)**; instead, penalties for failure to file, pay, or deposit will **not be assessed at all** during processing of the eligible return or period ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai)).
## Effective Dates and Transition
- AEP begins in **summer 2026**, applying first to **tax year 2025** returns and **2026 quarterly returns**, and then to all future tax periods ([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**; for returns with original due dates on or after **January 1, 2027**, AEP replaces FTA entirely ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai)).
## Who Qualifies? What Penalties Are Eligible?
**Qualifying criteria:**
- Timely filing of returns and timely tax payments for the prior **three tax years** (or 12 consecutive quarters for quarterly filers) without penalties, and
- No unpaid taxes or missed deposits in those periods (for the returns considered) ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai)).
**Eligible penalty types (for which penalties WON’T be assessed):**
- Failure to file penalties (e.g., 1040, 1120, etc.)
- Failure to pay penalties
- Failure to deposit penalties (such as payroll deposits) ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai)).
Exceptions:
- Returns tied to **infrequent or transaction-based filings**, such as gift tax returns, estate tax returns, or other one-time events are generally **not eligible** ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai)).
- Penalties that accrue as interest or relate to information reporting dependent on other requirements may still apply.
## Example Scenario
| Tax Year | Timely File & Pay | Eligible for AEP on Filings in 2026? |
|----------|---------------------|----------------------------------------|
| 2022-Tax-Year (filed Apr 2023) | Yes | Yes – counts toward history |
| 2023 | Yes | Yes |
| 2024 | Yes | Yes |
| 2025 (filed in 2026) | Late deposit, but fulfills history | If late, may lose eligibility for that period |
If someone meets the history for 2022-2024, then returns for 2025 filed in summer of 2026 qualify for AEP, avoiding penalties for failures that began in those returns.
## What To Do Now
- Check your filing history: Were there any late filings, missed deposits, late payments? If yes, you might not qualify yet.
- If you think you qualify, wait for the IRS to notify you via letter confirming AEP relief. No action should be needed from you if you're eligible ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai)).
- If you receive a penalty that you believe AEP should have prevented, contact IRS to request a review.
- Maintain record of **payments and deposit timing**, as penalties like failure to deposit are closely watched.
**Bottom line**: If you’ve been compliant in recent years, starting summer 2026 you’ll get penalty relief **automatically** — no more applying for First Time Abate. This should simplify filing and reduce surprise charges for many.