Compliance
Compliance Essentials: Automatic Penalty Relief (AEP) and Your 2025 Return
Learn about the IRS’s new Automatic Penalty Relief (AEP) program for taxpayers with timely past returns—it may drop common late filing or payment penalties.
By NomadicTax Research Team • 5-8 min read • July 20, 2026
## What Is Automatic Penalty Relief (AEP)?
AEP is a **new IRS initiative** introduced July 8, 2026, that allows taxpayers with a clean history (i.e. those who have consistently filed and paid on time) to have certain penalties automatically waived—without needing to request relief. ([taxpayeradvocate.irs.gov](https://www.taxpayeradvocate.irs.gov/news/nta-blog/a-long-awaited-taxpayer-win-the-irs-implements-automatic-penalty-relief/2026/07/?utm_source=openai))
It will phase in for **2025 tax year returns** and **2026 quarterly returns**. As of 2027, IRS expects AEP to cover more returns, gradually replacing the older “First Time Abate” (FTA) program. ([taxpayeradvocate.irs.gov](https://www.taxpayeradvocate.irs.gov/news/nta-blog/a-long-awaited-taxpayer-win-the-irs-implements-automatic-penalty-relief/2026/07/?utm_source=openai))
## Which Penalties Qualify for AEP?
| Penalty Type | Eligible Under AEP? | Notes |
|---|---|---|
| Certain failure to file penalties | Yes | If you filed and paid all required past returns on time. |
| Failure to pay penalties | Yes | If part of a consistent compliance history. |
| Non-eligible forms | Estate & gift tax returns (Forms 706, 709), plus rarely used/infrequent event filings | These are generally excluded. |
## What You Need to Do (or Not)
- **You do *not* need to apply** for AEP: the IRS will send a notice if AEP was applied. If an eligible return does *not* include such notice, a taxpayer may reach out. ([taxpayeradvocate.irs.gov](https://www.taxpayeradvocate.irs.gov/news/nta-blog/a-long-awaited-taxpayer-win-the-irs-implements-automatic-penalty-relief/2026/07/?utm_source=openai))
- **Ensure your records show timely past filings/payments**: If there’s a history of compliance, you’re more likely to benefit.
- **File accurate returns on time for 2025 and quarterly 2026 returns** to qualify under phase-in rules.
## Real Case Example
**Scenario**: Alex has filed their individual returns for the last 4 years and always paid any owed taxes by the deadline. For tax year 2025, Alex filed their return on time but didn’t pay the full balance until later, incurring a failure-to-pay penalty.
When AEP is implemented:
- The IRS may automatically **waive the penalty** because Alex has shown a clean compliance history.
- Alex **does not need to submit a separate request**.
- If Alex receives a notice without mention of AEP, they can contact the IRS to confirm eligibility.
## Implications for Compliance Strategies
- **Strengthen your compliance record**: Late filings/payments can disqualify you—be diligent going forward.
- **Communicate with your tax professional**: Ensure that the returns/forms you file are eligible (avoid unusual transactions that may exclude qualification).
- **Watch for IRS notices**: If AEP applies, you’ll receive a notice saying the penalty was not assessed. If you believe you qualify but don't get such notice, you may need to follow up.
## Summary
Automatic Penalty Relief (AEP) represents a shift from relief being something you must **request**, to something you may **automatically receive** if you have a solid compliance history. The key is to stay organized, file accurately, and pay on time. If the stars align, this could save you hassle—and dollars—come filing season.