What’s Changing: the AEP Takes Over
In summer 2026 the IRS officially launched the Automatic Exemption from Penalty (AEP) program to replace the First Time Abate (FTA) process. No more paperwork or phone calls for eligible taxpayers—it’s automatic. AEP applies to original returns due Jan 1, 2025 onward, and to 2026 quarterly returns among others. (irs.gov)
Who Qualifies?
To be eligible:
- Must have timely filed and paid taxes for the prior 3 years for most individual taxpayers;
- For business quarterly filers, must have a timely compliance history for the prior 12 consecutive quarters. (taxpayeradvocate.irs.gov)
Some penalties and returns are not eligible:
- Infrequent event returns (e.g., Form 706, Form 709);
- Returns filed only in response to specific transactions;
- Certain penalties not covered. (taxpayeradvocate.irs.gov)
What Penalties AEP Covers
For individuals:
- Failure to file;
- Failure to pay.
For eligible businesses:
- Failure to file;
- Failure to pay;
- Failure to deposit. (taxpayeradvocate.irs.gov)
If you qualify, the IRS will automatically prevent the assessment of those penalties.
What to Expect During Transition
- Taxpayers do not need to request this relief—IRS will identify eligible cases and suppress penalties.
- AEP will fully replace FTA as of Jan 1, 2027 for returns with original due dates then and later. (irs.gov)
- During 2025-2026, some returns might still receive penalty notices if processed before AEP’s implementation; those may qualify for FTA or other relief via reasonable cause. (taxpayeradvocate.irs.gov)
What You Should Do
- Verify your filing history—make sure no missing returns or payments in the look-back periods.
- Check notices carefully—if you get a penalty notice and didn’t receive AEP relief, you may still have recourse under FTA or reasonable cause.
- Keep documentation of your filings and payments for at least the last three years (or 12 quarters).
Why This Matters
AEP reduces burden on compliant taxpayers, shifting IRS workload to automatically grant relief rather than respond to individual requests. For many individuals and businesses with solid history, this means fewer surprises, penalties avoided, and smoother compliance. But in years of financial hardship or missed filings, the new standard may not help, so maintaining compliance is still important.