Compliance
Automatic Penalty Relief: How the IRS’s New AEP System Can Help You Avoid Fines
The IRS has replaced the First Time Abate program with Automatic Exemption from Penalty (AEP), offering overdue relief for compliant taxpayers without needing to file a request. Here's how it works—and whether you qualify.
By NomadicTax Research Team • 6 min read • August 28, 2026
## What Is AEP?
The **Automatic Exemption from Penalty (AEP)** is a system launched in **summer 2026** that gives penalty relief automatically to taxpayers who have a solid history of filing on time and paying what they owe. It takes over from the older **First Time Abate** (FTA) program, simplifying the process so taxpayers don’t have to apply or ask for relief. ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
### Penalties Covered by AEP
AEP can prevent assessments of:
- **Failure-to-file** penalties
- **Failure-to-pay** penalties
- **Failure-to-deposit** penalties (for business taxpayers) ([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))
Not every return or penalty type qualifies—special returns like **Form 706** (Estate Tax) or **Form 709** (Gift Tax) are generally excluded. ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
## Who Qualifies?
To be considered eligible, you generally must have:
- Timely filed all required returns and paid due taxes for the **three prior years**, or 12 consecutive quarterly returns if you're a quarterly filer. ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
- No penalties of the types covered by AEP during those periods. During the transition, some who qualify may still receive penalty notices if the returns were processed before AEP became available. ([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))
## When Does It Replace FTA?
AEP replaces First Time Abate for original due dates on or after **January 1, 2027**. Returns before then may still fall under FTA or receive AEP retroactively depending on processing dates. ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
## What You Need to Do (or Not Do)
- Generally, **you don’t need to do anything**—if you qualify, AEP kicks in automatically. ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
- If you get a penalty notice that you believe should've been covered, check whether AEP was applied. If not, contact the IRS about FTA or other reasonable cause relief. ([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))
## Examples
| Scenario | Outcome Under AEP |
|----------|-------------------|
| You filed returns and paid taxes on time for 2023–2025 with no failures | Your late 2025 annual return won’t trigger late-filing penalty under AEP. |
| Quarterly business filer with 12 straight compliant quarters | Failure-to-deposit penalty waived for taxes due in a qualified quarter. |
## Stay Alert!
- AEP doesn’t impact liabilities for interest—those still apply when due. ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
- If your returns involve nonstandard forms or events (estate, gift tax), AEP likely won’t apply. ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
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By recognizing taxpayers who consistently file and pay on time, AEP brings fairness and simplicity to penalty relief. If you believe you qualify but didn’t receive AEP, reach out—you might still secure retroactive relief under FTA or other avenues.