Compliance
Automatic Penalty Relief is Changing: How Taxpayers Can Qualify Under AEP
With the First Time Abate program fading, the new Automatic Exemption from Penalty (AEP) eases penalty relief for compliant taxpayers—learn who qualifies and what to expect.
By NomadicTax Research Team • 5-8 min read • September 9, 2026
## What is AEP and Why It’s Replacing First Time Abate
Beginning summer 2026, the IRS introduced the **Automatic Exemption from Penalty (AEP)** program, set to replace the **First Time Abate (FTA)** program for eligible original returns with due dates on or after **January 1, 2027**. For tax year 2025 returns and 2026 quarterly returns, the IRS began phasing in AEP.([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
## Who is Eligible
| Filing Type | Requirement |
|---|---|
| **Individual taxpayers (annual returns)** | Timely filed and timely paid taxes for the **previous three years**.([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai)) |
| **Business taxpayers (quarterly)** | Timely compliance for the **previous 12 consecutive quarters**.([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai)) |
| **Ineligible returns/pens using AEP** | Certain returns tied to irregular events (estate, gift, etc.), information returns, or returns in response to infrequent transactions.([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai)) |
## What Penalties May Be Automatically Relieved
- Failure-to-file penalties
- Failure-to-pay penalties
- Failure-to-deposit penalties (for businesses)
Note: AEP does **not** relieve interest on taxes due, nor does it relieve any penalties or obligations not covered under these three items.([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
## Timeline & Phase-In
- AEP began in **summer 2026** for eligible **2025 original returns** and **2026 quarterly returns**.([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
- AEP will fully replace FTA for returns due **Jan. 1, 2027** and onward.([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
## What Taxpayers Should Do Now
1. **Maintain timely filing and payment history** — one late or missing return or payment in the past three years may cost eligibility.
2. **Check IRS notices** — eligible taxpayers will receive notifications that AEP was applied and that no penalties were assessed.
3. **Don’t wait to pay liabilities** — AEP only affects certain penalties; underlying tax and interest must still be paid.
4. **If you think you qualify but didn’t get relief**, contact IRS and verify via penalty relief or reasonable cause provisions.
## Example
Jordan files individual tax returns annually. He filed and paid on time in tax years 2022, 2023, and 2024. For his 2025 original return filed on April 2026, AEP may prevent assessment of failure-to-file or failure-to-pay penalties automatically. For his 2026 quarterly payments (say business estimated tax), if he met all 12 quarterly payments timely, he may get no penalties on late payments relating to those eligible quarters.
## Bottom Line
AEP simplifies penalty relief by making it automatic for eligible taxpayers, reducing burdens, and replacing the older FTA process. Taxpayers should ensure compliance history is clean, stay updated with IRS notices, and anticipate full implementation in 2027.