How the IRS’s Automatic Penalty Relief (AEP) Program Simplifies Late Filing

What Is Automatic Exemption from Penalty (AEP)?

The IRS’s new AEP program replaces the First Time Abate (FTA) relief, automatically providing penalty relief for eligible taxpayers who have a history of timely filings. (irs.gov)

Key Features & Eligibility Criteria

• Applies to original returns starting with the 2025 tax year and quarterly returns in 2026 and subsequent years. (irs.gov)
• Eligibility requires:
  • A history of timely filing and paying taxes over the prior three years or for 12 consecutive quarters for quarterly filers. (irs.gov)
  • Coverage of penalties for Failure to File, Failure to Pay, and Failure to Deposit under specific return types (e.g., Forms 1040, 941, etc.) (irs.gov)

Timeline of Transition

• Summer 2026: AEP begins phasing in. FTA still applies during this transition period. (irs.gov)
• January 1, 2027 onwards: AEP fully replaces FTA for eligible returns with due dates on or after this date. (irs.gov)

What This Means for Taxpayers

Scenario 1: Late Filing But Eligible

If you're a small business owner who’s filed all returns and paid all taxes on time from 2023-2025, but your 2025 return filed late, AEP will automatically ensure no failure-to-file penalty is assessed. No need to file a request. (irs.gov)

Scenario 2: Ineligible Returns or Special Forms

Certain forms—such as gift tax (Form 709) or estate tax (Form 706)—are generally not eligible. AEP also doesn’t cover penalties for information returns due to specific events. (irs.gov)

Scenario 3: Early Year Notices Before AEP Applied

If your 2025 return was processed before AEP began and you receive a penalty notice, but believe you should qualify, you can contact the IRS, request First Time Abate (if still available), or reasonable cause relief. (taxpayeradvocate.irs.gov)

Actionable Advice for Taxpayers

• Check your compliance history: Make sure you’ve filed and paid on time for the required period.
• Keep records of your filing and payment dates, especially if you prepare for quarterly returns.
• Review any IRS notices: If you receive a penalty notice and didn’t get AEP relief, act quickly to contest or request relief.
• Look out for Publication 6171 (AEP) released July 27, 2026, for official guidance. (irs.gov)

Why This Change Matters

• Reduces administrative burden of filing requests for relief. (taxpayeradvocate.irs.gov)
• Increases equity—those unaware of FTA or unable to access support now benefit automatically. (taxpayeradvocate.irs.gov)
• Helps IRS streamline operations and reduce unnecessary paperwork and phone volume. (taxpayeradvocate.irs.gov)