Compliance
Automatic Penalty Relief: How AEP Replaces First Time Abate
The IRS is rolling out the Automatic Exemption from Penalty (AEP), phasing out First Time Abate to simplify relief for those with strong filing histories.
By NomadicTax Research Team • 5-8 min read • September 12, 2026
## Background: Why Change Penalty Relief
Traditional relief like **First Time Abate (FTA)** required taxpayers to request relief manually. To reduce burden and improve fairness, the IRS introduced **Automatic Exemption from Penalty (AEP)** in mid-2026. ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
## What AEP Covers
AEP applies automatically for eligible returns without needing to file a special request. Here's what it does:
- Prevents assessment of *failure-to-file* and *failure-to-pay* penalties for qualifying individual tax returns. For businesses, *failure-to-deposit* penalties may also be covered. ([taxpayeradvocate.irs.gov](https://www.taxpayeradvocate.irs.gov/news/tax-tips/tips-for-taxpayers-who-may-qualify-for-automatic-penalty-relief/2026/08/?utm_source=openai))
- Requires a clean record for the **three prior years** (or 12 consecutive quarters for quarterly filers) in terms of filing and paying taxes. ([taxpayeradvocate.irs.gov](https://www.taxpayeradvocate.irs.gov/news/tax-tips/tips-for-taxpayers-who-may-qualify-for-automatic-penalty-relief/2026/08/?utm_source=openai))
## Transition vs Full Implementation
- AEP **began phasing in summer 2026**, applying to many tax year 2025 returns and all 2026 quarterly returns. ([taxpayeradvocate.irs.gov](https://www.taxpayeradvocate.irs.gov/news/tax-tips/tips-for-taxpayers-who-may-qualify-for-automatic-penalty-relief/2026/08/?utm_source=openai))
- FTA will be phased out; AEP will fully replace FTA for returns with original due dates on or 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 Now
- **Check your compliance history**: no late filings or late payments in past 3 years (or 12 clean quarters) is required.
- If you receive a penalty notice for eligible periods and no AEP notice, verify whether AEP should have applied. Request relief using FTA or reasonable cause if appropriate. ([taxpayeradvocate.irs.gov](https://www.taxpayeradvocate.irs.gov/news/tax-tips/tips-for-taxpayers-who-may-qualify-for-automatic-penalty-relief/2026/08/?utm_source=openai))
- Maintain excellent documentation of payments, filings, and communications with IRS.
## Example Scenario
Jane runs a small consulting business. She filed and paid taxes on time for 2023-2025, including estimated taxes. In August 2026, Jane properly files her 2026 Q2 return, but misses a payroll deposit. Under AEP, failure-to-deposit penalty may be prevented if her history qualifies; but if it's just one failure, that part may not qualify. Review each penalty type to see if AEP applies.
## Compliance Risks & Caveats
- AEP does *not* relieve interest, underlying tax liabilities, or penalties related to **information returns**, rare event filings, gift tax, estate tax, etc. ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
- Be wary during the transition: returns processed during the shift may still show FTA or prior relief—but AEP should properly apply. If treated wrongly, taxpayers may need to request correction.
AEP simplifies relief for many, but documentation and awareness is key. If you aren’t sure whether you qualify, it's wise to consult a tax professional to review your record and correspondences. This article is for educational purposes.