Compliance
Automatic Penalty Relief: IRS’s New AEP Program Simplifies Burden for Compliant Taxpayers
The IRS’s new Automatic Exemption from Penalty (AEP) program replaces First Time Abate, offering penalty relief without taxpayer action for those with strong compliance histories.
By NomadicTax Research Team • 5-8 min read • August 12, 2026
## What Is the Automatic Exemption from Penalty (AEP)?
The IRS has introduced **AEP**, a new automatic penalty relief program designed to ease the burden on taxpayers who consistently file and pay on time. It begins with tax year 2025 and quarterly returns for 2026. Qualifying taxpayers **no longer need to request** relief under First Time Abate for eligible filings. ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
## Who Qualifies—and What Penalties Are Covered
**Eligibility Requirements:**
- Timely filing and payment in the **three prior tax years** (or twelve consecutive quarters for quarterly returns). ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
- Returns must be original (not amended) for tax years 2025 onward, and similar rules apply for quarterly returns.
**Covered Penalties Relieved Automatically Include:**
- Failure to file penalties
- Failure to pay penalties
- Failure to deposit penalties
**Excluded Returns & Situations:**
Returns filed in response to infrequent events or specific transactions—like Forms 706 (Estate Tax Return) or 709 (Gift Tax Return)—are generally **not eligible** for AEP relief. ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
## Transitioning from First Time Abate (FTA)
- FTA is being **phased out** during summer 2026. Some taxpayers might still receive FTA notices for 2025 or earlier, but AEP becomes the default for eligible 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))
- For returns prior to eligibility or non-qualifying types, taxpayers can still **request reasonable cause relief**.
## Action Steps for Taxpayers
1. **Review your filing & payment history** for the last three years. If clean, you likely will qualify for AEP.
2. **Don’t delay filing**. Even if the return is eligible, filing and pay accurately and timely ensures AEP applies.
3. **If a penalty is assessed**, watch for IRS notice confirming AEP was applied. If not, be prepared to submit documentation and/or request relief.
## Example case
- **Juan** has filed timely and paid all taxes for 2022-2024. In 2025, he misses a quarterly deposit deadline.
- Under **AEP**, even though originally penalty would have applied, he qualifies due to prior compliance and would receive **automatic relief** (no action needed) for that missed quarterly deposit.
- If that same mistake happened for 2024, before AEP eligibility, he’d have needed to request relief through FTA or reasonable cause.
## Why It Matters
- **Reduces administrative burden**—taxpayers don’t need to fill out extra forms or requests just to get relief for penalties they should have avoided.
- **Enhances fairness**, especially for taxpayers with strong compliance records who slipped occasionally.
- **Saves time and resources**, both for IRS and taxpayers.
## Key Takeaways
- AEP starts now for eligible 2025 returns and 2026 quarterly returns—watch your notices
- First Time Abate stays around briefly but phased out by **January 1, 2027** for original due dates
- Maintain clean compliance and record-keeping to maximize chances of automatic relief