Compliance
How the Automatic Exemption from Penalty (AEP) Will Simplify Penalties for Timely Compliant Taxpayers
Starting summer 2026, the IRS will automatically waive certain penalties for taxpayers who have a three-year history of filing and paying on time—no longer will you need to request relief manually.
By NomadicTax Research Team • 5-8 min read • July 31, 2026
## What Is the Automatic Exemption from Penalty (AEP)?
The IRS announced *IR-2026-83* on **July 8, 2026**, introducing the **Automatic Exemption from Penalty (AEP)** program. This replaces the First Time Abate (FTA) relief for certain penalties. If you’ve consistently filed returns and paid all tax due in full on time for the prior **three years** (or 12 consecutive quarters for quarterly filers), the IRS will **automatically** not assess penalties for failures to file, pay, or deposit. You don’t need to request this relief—it will be applied during return processing if you qualify. ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
## Who Qualifies and What Penalties Are Covered
To be eligible for AEP, you must meet certain criteria:
- Have timely filed all required **original returns** for the past three tax years (or 12 consecutive quarters for quarterly payers).
- Paid any tax due as shown on those returns in full during those years. ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
Penalties AEP covers (and when they won’t be assessed if eligible):
- Failure-to-file penalties
- Failure-to-pay penalties
- Failure-to-deposit penalties for payroll/excise returns ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
However, AEP **does *not*** apply to:
- Information returns (e.g. certain infrequently filed forms like Form 706 or 709)
- Accuracy-related penalties
- Other penalty types like daily delinquency penalties ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
## Transition and Timeline
- **Summer 2026**: AEP begins being phased in.
- Applies to **original returns** for **tax year 2025** and **2026 quarterly returns**, and all future eligible periods. ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
- FTA remains temporarily available for eligible returns during this transition (e.g. early 2025 returns or 2026 quarterly ones processed before AEP is fully in place). FTA will be phased out for returns due on or after **January 1, 2027**. ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
## Actionable Insights for Taxpayers
- **Check your filing history**: Ensure you’ve filed all required returns and paid taxes due for 2023, 2024, and 2025 (or the past 12 quarters if quarterly filer).
- **Do nothing extra**: If you qualify, relief is automatic—you’ll receive a notice that penalties were not assessed due to your history of compliance. ([irs.gov](https://www.irs.gov/newsroom/automatic-exemption-from-penalty-what-taxpayers-should-know?utm_source=openai))
- **Keep good documentation**: Even though you might not need to request relief, keeping proper records is still essential in case the IRS requires proof later or if your eligibility is questioned.
- **Still pay taxes and interest when due**: AEP doesn’t relieve tax or interest obligations. Only applicable penalties are waived. ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
## Example Scenario
| Situation | Eligible for AEP? | Action Needed |
|---|---|---|
| Alice filed every return and paid every tax due for 2023–2025 on time, but accidentally missed her quarterly payroll deposit in Q2 2026 | Yes—she meets the prior compliance requirement; penalty for failure to deposit in eligible return may be waived under AEP | Just wait—IRS should not assess that penalty automatically; no request needed |
| Bob missed filing his 2023 return entirely | No—he doesn’t meet the 3 prior years of filing requirement | He should file the missing return and may ask for First Time Abate (if still eligible) or seek reasonable cause relief |
## What About FTA and Other Reliefs?
- **First Time Abate (FTA)** remains usable for eligible returns during the transition—for periods before AEP is effective for your return. ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
- If you don’t qualify for AEP and find yourself facing penalties, you may still seek **reasonable cause relief** or other forms of abatement through IRS processes. ([irs.gov](https://www.irs.gov/payments/administrative-penalty-relief?campaign=home&redirect_count=1&redirect_id=8a0ae530-a817-4298-b4d6-10e444c289d8&utm_source=openai))
**Bottom line**: AEP marks a shift toward automating penalty relief for taxpayers who consistently meet filing and payment obligations—easing burden and uncertainty. If you’ve been compliant, you may soon stop worrying about penalties for honest mistakes that otherwise would have required a special request.