Compliance
From First Time Abate to AEP: Navigating the New Automatic Penalty Relief System
The IRS’s rollout of the Automatic Exemption from Penalty (AEP) in summer 2026 fundamentally changes how taxpayers qualify for relief from late-file or late-pay penalties—without having to ask.
By NomadicTax Research Team • 5-8 min read • September 8, 2026
## What is the Automatic Exemption from Penalty (AEP)? ##
The AEP is a new IRS program, replacing the First Time Abate (FTA) relief for many taxpayers. It’s **automatic**—if you qualify, the IRS applies it without action on your part. ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
### Penalties Covered Under AEP:
- Failure-to-file
- Failure-to-pay
- Failure-to-deposit (for businesses) ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
### Who Qualifies:
- Taxpayers with a history of **timely filing and paying** for the past **three years**, or business/quarterly filers with **12 consecutive quarterly returns** in compliance. ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
- The rules begin applying for **tax year 2025 returns** and **2026 quarterly returns onward**. ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
### What’s Changing vs First Time Abate (FTA):
| Feature | First Time Abate | AEP |
|---------|------------------|-----|
| Application | Taxpayer must request relief | Relief applied by IRS automatically if eligible |
| Period | Limited to one-time relief | Continuous eligibility as long as you maintain compliance |
| Effective Dates | Applies to earlier eligible returns | Effective for returns and periods as above |
### Actionable Steps to Prepare:
1. **Verify your compliance history** for the past three years (or 12 quarters if applicable). Late filings, unpaid taxes could disqualify you temporarily.
2. If you haven’t been eligible, catch up—file all returns and pay outstanding taxes to establish qualifying history.
3. Keep good records of filing and payments—you might need them if questioned.
4. If you think you should have gotten AEP but received a penalty notice, respond to the IRS to contest. Relief should be automatic if eligible. ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
## Implications & Pitfalls to Watch ##
- Even with AEP, **interest** still accrues on any tax unpaid by the due date. AEP doesn’t erase that. ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
- Not all penalty types are covered—information returns or returns for infrequent events (like estate or gift tax returns) likely aren’t eligible. ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
- Be aware of the **transition period**—some returns prior to the full effective date may still be processed under FTA. ([irs.gov](https://www.irs.gov/forms-pubs/changes-to-current-forms-publications?utm_source=openai))
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### Bottom Line
If you've reliably filed and paid your taxes on time, AEP could spare you penalties without extra paperwork. It incentivizes maintaining compliance and rewards consistency. But failing to meet even one requirement (like missing a quarterly deposit) could prevent qualification. Stay up to date, stay consistent.