What is the Automatic Exemption from Penalty (AEP)?
Starting summer 2026, the IRS rolled out AEP, which replaces the First Time Abate program for eligible taxpayers. Under AEP, most penalties for failure to file, failure to pay, or failure to deposit will be automatically waived if certain eligibility conditions are met. (irs.gov)
Who qualifies for AEP?
You may be eligible if:
- You have filed all required returns and paid taxes due for the past three years (or 12 consecutive quarters if you file quarterly) on time. (irs.gov)
- You are filing an original return, not an amended return. Social returns tied to special events (like estates or gift returns) may be excluded. (irs.gov)
When does AEP apply?
- AEP applies automatically—no action required by taxpayers if they meet eligibility. The IRS will identify eligible returns during processing and issue confirmation notices. (irs.gov)
- Starting Jan. 1, 2027, AEP will fully replace the First Time Abate program for returns with original due dates on or after that date. During the transition (summer 2026), some returns—even if eligible—may still receive notices under the old program. (irs.gov)
What penalties are covered and what are not?
Covered Penalties:
- Failure to file
- Failure to pay
- Failure to deposit (for business taxpayers) (taxpayeradvocate.irs.gov)
Not Covered:
- Returns filed late in response to specific one-time events (e.g., Form 706, Form 709)
- Penalties due to reasonable cause are still evaluated separately when AEP does not apply. (irs.gov)
Practical Examples
| Scenario | Qualified? | Consequence Under AEP |
|---|---|---|
| You’ve filed and paid 3 prior years on time; fail to file 2025 by deadline | Yes | No failure to file penalty assessed for 2025 return |
| Missed one quarterly estimated payment for 2025, but filed on time | No (timely pay and file required) | Penalty for that missed payment remains unless reasonable cause |
| Amended return needed due to error in 2025 filing | Not eligible under AEP | Must request standard penalty relief or other programs |
How to handle a penalty notice anyway
If you receive a notice:
- Review whether AEP should have applied based on eligibility.
- If it did not, but you believe you qualified, contact the IRS with copies of prior returns, payment records, and context. You may still request relief under First Time Abate (during transition) or for reasonable cause. (taxpayeradvocate.irs.gov)
Key Takeaways & Action Items
- Ensure prior years’ returns and payments are filed and made on time moving forward.
- Keep good records—tax return dates, payment confirmations, and correspondence.
- Watch your mail—if AEP applies, the IRS will send a notice confirming it.
- For returns due beginning Jan. 1, 2027, assume First Time Abate will no longer be an option for eligible scenarios—AEP will be the rule. (irs.gov)
AEP is a significant, taxpayer-friendly shift: qualifying means penalty relief becomes automatic, not something you have to ask for.