Compliance
How the IRS’s Automatic Exemption from Penalty (AEP) Simplifies Penalty Relief for Compliant Taxpayers
Starting in summer 2026, the IRS will automatically waive certain penalties for taxpayers who meet consistent filing and payment records—no more special requests for relief.
By NomadicTax Research Team • 5-8 min read • July 30, 2026
## What is the Automatic Exemption from Penalty (AEP)?
In **July 2026**, the IRS introduced a streamlined process called the **Automatic Exemption from Penalty (AEP)**. This new provision replaces the old First Time Abate (FTA) program, making **penalty relief automatic** for eligible taxpayers with strong compliance histories. ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
## Who qualifies and for which penalties?
To be eligible for AEP, taxpayers must meet these requirements:
- They must have filed and paid any taxes due in full on time for the **three prior tax years** (or **12 consecutive quarters** for quarterly filers). ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
- Applicable penalties eligible for relief include **failure to file**, **failure to pay**, and **failure to deposit**. ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
- AEP covers **original returns** beginning with **tax year 2025** and **2026 quarterly returns**, plus future tax periods. ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
- Not all returns qualify—for example, estate or gift tax returns like **Form 706 or Form 709**, and information returns tied to one-off events, are generally excluded. ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
## What changes compared to First Time Abate (FTA)?
| Feature | FTA | AEP |
|---|---|---|
| Requires taxpayer action | Yes | No |
| Relief applied before assessment | No | Yes |
| Penalty assessment then removal | Yes | Not applicable |
| Applicable timeframe starts | Tax year 2025 (FTA still applies during transition) | Tax year 2025 onward, with full replacement January 1, 2027 |
During the **transition in summer 2026**, some taxpayers may still receive notices under FTA. After **January 1, 2027**, AEP will fully replace FTA for eligible returns with original due dates on or after that date. ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
## Actionable Insights: Steps You Can Take Now
1. **Review your last three years** of tax filings. If you’ve filed and paid timely, you’re likely eligible.
2. **Let the IRS handle the relief.** If eligible, you don’t need to request AEP; you’ll receive a notice that penalties weren’t assessed. ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
3. If you **receive a penalty notice**, but believe you're eligible for AEP, **contact the IRS**—mistakes happen.
4. Document everything—ifs filing history or payments are messy, gather proof. Only clean records make you eligible.
## Example Scenario
Jessica files individual returns for 2023 and 2024, paying all tax due and with no late filings. In March 2026, she files her 2025 return late. Under FTA, she would have needed to request relief. But under AEP in summer 2026, **if her past filings are clean**, the IRS will **automatically waive penalties** for failure to file and pay—no action required on her part.
## Why It Matters
This policy significantly reduces the compliance burdens on reliable taxpayers. Penalties related to late filing or payment can add up quickly; removing the need to request relief cuts down stress and paperwork. Also, the IRS’s move promotes fairness and consistency in administrative processes.
If you want to dig deeper, visit the IRS’s “Administrative Penalty Relief” page to see full eligibility rules and examples. ([irs.gov](https://www.irs.gov/payments/administrative-penalty-relief?utm_source=openai))