Compliance

Automatic Penalty Relief: What IRS’s AEP Program Means for You

If you've consistently filed and paid your taxes on time, the IRS’s new Automatic Exemption from Penalty (AEP) may shield you from certain penalties—no request necessary.

By NomadicTax Research Team • 5-8 min read • August 24, 2026

## What Is AEP & Why It Matters The **Automatic Exemption from Penalty (AEP)** replaces the IRS’s longtime **First Time Abate** process. Under AEP, eligible taxpayers will automatically receive relief from certain penalties—no application required—from returns beginning in tax year **2025 and for future returns**, including many 2026 quarterly returns. ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai)) ## Eligibility Basics To qualify, you must have a consistent history of **timely filing and timely paying**, specifically: - For annual returns: no penalties assessed in the **three prior years** - For quarterly returns: no missed deposit or filing penalties in the past **twelve consecutive quarters** ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai)) Does not require you to file anything to receive this relief. The IRS will apply it during processing and will send you a notice confirming it. ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai)) ## Penalties Covered (and Not Covered) AEP may exempt you from: - Failure to file penalty - Failure to pay penalty - Failure to deposit penalty It **does not** cover: - Interest charges on unpaid tax - Penalties outside of those specific categories - Returns not eligible under AEP (e.g., estate tax returns, gift tax returns, some infrequently filed returns) ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai)) ## Transition & Phase-Out of First Time Abate - **First Time Abate** is being phased out during **summer 2026**. During this period, some taxpayers may still receive First Time Abate relief for qualifying returns (2025 annual, 2026 quarterly). ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai)) - AEP fully replaces First Time Abate for eligible returns **with original due dates on or after January 1, 2027**. After that, First Time Abate won’t be available. ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai)) ## Who Should Check Their Status? If you’ve been compliant—filing and paying on time—for recent years, verify you're receiving AEP and not missing relief you deserve. Keep in mind: just because you're eligible doesn’t guarantee automatic relief—IRS notices will confirm it, so monitor for those communications. | If you have spotty compliance or past penalties, First Time Abate or reasonable cause exceptions may still apply during the transition—but check deadlines carefully. | ## Examples & Implications - A taxpayer who filed annual returns with no penalties for 2022-2024 and files the 2025 return timely will automatically get relief on failure to file/pay penalties. | - A small business making quarterly payroll and other deposits without penalties over the last 12 quarters will qualify for relief under AEP for upcoming quarters, too. | - But a gift tax return, even with perfect compliance, is *not* eligible for AEP relief. | ## What You Should Do Now - Review your filing & payment history for the last 3 years / 12 quarters. | - For 2025 returns and 2026 quarterly returns: expect eligibility; wait for IRS confirmation notice. | - Gather proof in case you need to show you meet eligibility criteria. | - If you need penalty relief and don't qualify for AEP, prepare Reasonable Cause documentation. | --- **Bottom Line:** AEP makes penalty relief automatic for many taxpayers who’ve been compliant—no more applying for First Time Abate from 2027 onward. It’s a win for those who’ve kept up with their tax obligations and pay on time.