Compliance
Automatic Penalty Relief and the End of First Time Abate: What Taxpayers Need to Know
The IRS is moving to the Automatic Exemption from Penalty (AEP) program, phasing out the First Time Abate relief, and simplifying how penalty relief is granted.
By NomadicTax Research Team • 5-8 min read • September 3, 2026
## Overview of the Change
In **summer 2026**, the IRS introduced the **Automatic Exemption from Penalty (AEP)** program. AEP replaces the longstanding First Time Abate (FTA) program, starting with tax year **2025** returns and **2026 quarterly** returns. For most taxpayers who have filed and paid on time for the prior three years—or 12 consecutive quarters for quarterly returns—penalties for failure to file, pay, or deposit will automatically be exempted. ([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 returns and paid any taxes due for the _three prior years_.
- Businesses with quarterly filing obligations must have 12 consecutive eligible quarters with timely compliance.
- Some returns remain ineligible (e.g., estate tax returns, gift tax returns, or “infrequent transaction” returns).
- The relief only applies to **original returns** due in those years—not amended returns. ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
## What’s Ending, What’s Staying
- First Time Abate (FTA) will be **phased out** starting summer 2026. For returns due **on or after January 1, 2027**, AEP is intended to fully replace FTA. ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
- If your return was processed before AEP rollout, you might still get an FTA notice. Those who believe they qualify under FTA can still request it during the transition.
## Practical Examples
| Scenario | Qualifies for AEP? |
|---|---|
| Individual filed and paid 2022, 2023, 2024 returns on time; forgot estimated tax in Q1 2025 | No—must have timely compliance for Q4 2024 through Q3 2026 (three years or 12 quarters) |
| Small business with consistent filing and deposits quarterly from Q1 2024–Q4 2026 | Yes—once criteria met, penalties for failure to deposit may be automatically waived |
## What to Do Now
- **Check your compliance history**—being missing one year or quarter may disqualify you.
- **Keep documentation** proving timely filings and payments, as these will be used for qualification.
- **Review notices carefully**—if IRS sends a penalty notice and you're eligible, it may come with notice of AEP.
- **Tax professionals** should update client strategies, especially in estimating penalty risk.
## Takeaway
For many taxpayers, especially those with a solid compliance track record, the move to AEP means less paperwork, fewer requests, and automatic relief. But it’s essential to track eligibility carefully and act if you think you're eligible for exemptions or relief during the transition.