Compliance
Automatic Penalty Relief: Are You Eligible Under the IRS’s AEP Program?
The IRS has replaced the First Time Abate program with the new Automatic Exemption from Penalty (AEP), offering automatic relief to taxpayers with clean compliance histories—no request needed.
By NomadicTax Research Team • 5-8 min read • July 27, 2026
## Overview of the AEP Change
The Internal Revenue Service (IRS) introduced the **Automatic Exemption from Penalty (AEP)** program in **July 2026**, marking a major shift in how certain penalties are assessed. Under this new policy, eligible taxpayers no longer need to request relief for penalties related to **failure to file, failure to pay, and failure to deposit**. If you’ve filed and paid on time for the **three prior years** (or **12 consecutive quarters** for quarterly returns), AEP may apply automatically to your returns for **2025 and 2026**, and all future eligible tax periods. ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
The longstanding **First Time Abate (FTA)** program, which required taxpayers to apply explicitly for relief, is being phased out. AEP is designed to reduce taxpayer burden and ensure consistency. ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
## Who Qualifies—and Who Doesn’t
To qualify for AEP, a taxpayer must meet certain conditions:
- A history of **timely filing and payment** for the last three tax years or 12 quarters
- Returns must be **original**, and cover eligible periods (tax years 2025 and later for annual returns; quarterly returns for 2025–26 and forward) ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
Some returns and penalty types are **not eligible**. For example:
- Information returns, e.g. Form 706 (Estate Tax) and Form 709 (Gift Tax)
- Returns filed solely due to certain single events or transactions outside regular filing requirements ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
## Implications and Action Steps
### What This Means for Taxpayers
- **Less paperwork**: No need to request penalty relief manually when you qualify.
- **Equity**: AEP applies uniformly to all eligible taxpayers—older FTA requests may be replaced.
- **Attention to details**: Even if you qualify, you must still **pay any tax due**, plus interest; AEP covers only penalties. Also, penalties not covered by AEP or past due filings may still apply. ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
### How to Prepare
- Review your filing history for the past **three years** or **12 quarters**, depending on whether you're filing annually or quarterly.
- Ensure there are **no late filings or missed payments**, which would disqualify you.
- Keep documentation for proof if ever questioned by the IRS.
- If unsure, consider consulting a tax professional, especially if your situation is complex (e.g., multi-state, business income, etc.).
## Real-World Example
Sarah, a sole proprietor, has filed her income tax returns and paid her federal income tax on time for 2023, 2024, and 2025. She also filed all quarterly estimated taxes promptly. Under the **Old FTA regime**, she might have had to apply for relief if she accidentally late-filed a 2025 quarterly return. Under **AEP**, assuming no late filings/payments in those prior periods and her return is original, **no action is needed**—the IRS should automatically grant penalty relief. She’ll still owe any tax and interest.
## Caveats to Watch Out For
- Returns that are **amended** won’t qualify under AEP.
- If your filing history includes any non-payment or late payment, you may need to seek relief through **reasonable cause** provisions.
- Features like identity theft, suspended returns, or special forms may complicate eligibility.
## Your Checklist
- ✅ Confirm you meet the compliance history requirement.
- ✅ Ensure all returns are original, and not just filed due to a specific transaction.
- ✅ Continue to file and pay on time in 2026 to maintain eligibility.
- ✅ Don’t assume automatic qualifying—observe deadlines and details.
AEP streamlines penalty relief for taxpayers who do their part. It’s an opportunity to simplify compliance and avoid unwanted costs—if you qualify, the benefits are automatic.