Compliance
How the IRS’s New Automatic Exemption from Penalty (AEP) Eases Burdens for Reliable Filers
With the IRS introducing AEP in mid-2026, eligible taxpayers no longer need to request penalty relief for certain late filings—provided they have a solid history of compliance.
By NomadicTax Research Team • 5-8 min read • September 5, 2026
## What is AEP and Why It Matters
The **Automatic Exemption from Penalty (AEP)** replaces the former **First Time Abate (FTA)** program starting in Summer 2026. Under AEP, taxpayers who have three years of timely filing and payment history (or 12 consecutive quarters of compliant behavior for quarterly filers) will *automatically avoid certain penalties* without needing to request relief. ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
## Qualifying Penalties and Eligible Filers
AEP prevents assessment of penalties related to:
- Failure to file tax returns (Forms 1040, 1065, 1120, etc.)
- Failure to pay taxes due
- Failure to make required deposits (for businesses, employment taxes) ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
It does **not** apply to:
- Daily delinquency penalties, accuracy-related penalties, or information-return penalties
- Returns filed only for specific or infrequent events, like estates (Form 706) or gift tax filings (Form 709) ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
## Effective and Transition Dates
- AEP is available for original returns with due dates in **2025** and all **2026 quarterly returns** and onward. ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
- FTA is being phased out and will not be available for returns with original due dates 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))
## Practical Steps for Taxpayers
To benefit from AEP:
1. **Ensure accurate filing and payments** for the past 3 years (or past 12 quarters). Missing one year or delinquent payment could disqualify you.
2. **File returns and pay taxes on time going forward.** Even though penalties may not apply for late filing or payment, you’re still legally required to pay tax and interest. ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
3. **Watch your mailbox** for IRS notices confirming that AEP was applied. If you receive penalty notices and believe you qualify for AEP, contact the IRS. ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
## Example Scenarios
| Scenario | Qualifies for AEP? | Notes |
|---|---|---|
| Sole proprietor filed 2022–2024 returns on time; missed the 2025 payment; files 2025 return late but pays in full | **Yes** | Penalties for 2025 failure to file/pay may be waived automatically under AEP. |
| Corporate taxpayer missed 2023 payment and failed to file 2024 return, then files 2025 correctly | **No** | Fails the 3 prior years requirement. Must still make current filings on time. |
## Summary: What to Do Now
- Begin preparing for AEP if your tax history is strong.
- For returns with due dates **on or after January 1, 2027**, AEP replaces FTA entirely.
- If you don’t qualify, explore **reasonable cause** relief or other penalty waiver options.
- Keep detailed records—timely payments, filings, deposits—to prove eligibility.
With AEP, the IRS aims to streamline penalty relief and reduce taxpayer burden. For those who consistently comply, this policy means fewer letters, less stress, and more certainty.