What’s Changing: From First Time Abate to Automatic Exemption from Penalty
The IRS has replaced the First Time Abate (FTA) program with a streamlined system called the Automatic Exemption from Penalty (AEP) as of summer 2026. Eligible taxpayers will now receive penalty relief automatically—no forms, no requests needed. (irs.gov)
Who Qualifies
You may be eligible for AEP if you meet these criteria:
- For individual returns, you have a history of filing and paying on time over the past three years.
- For quarterly business returns, consistent compliance over 12 consecutive quarters.
- Applies to original returns for tax years 2025 and 2026 and future periods. (irs.gov)
What Penalties AEP Covers—and What It Doesn’t
Relief applies automatically to:
- Failure to file
- Failure to pay
- Failure to deposit (when deposits are due)
But note: returning information returns (e.g., estate or gift tax forms) or transactions triggered by rare or infrequent events may be excluded. Also, penalties not listed in these categories aren’t eligible under AEP. (irs.gov)
Why This Matters For Compliance
1. Reduce paperwork and third-party help. No need to submit a request or gather extra documents if you already meet the compliance history. Saves time and stress.
2. Predictable tax outcome. Instead of wondering whether your penalty relief request will be accepted, you’ll know in advance if you qualify.
3. Maintain compliance standing. Since the system rewards prior compliance, keeping up with filings and payments is more important than ever. Future penalties may be tougher if patterns of late or missed payments emerge.
What You Should Do Now
- Review your filing history: Were returns filed on time? Did you pay taxes and deposits by due dates?
- If you believe you're eligible but still received a notice, don’t panic—you may still get FTA during the transition, especially for eligible 2025–26 returns.
- Continue keeping good records. Even though AEP reduces the paperwork for relief, robust documentation helps if any question arises.
- Get professional advice if unsure. The details (especially for businesses with complex returns or income stream changes) can be tricky.
Real-World Example
Sarah runs a small e-commerce business. She’s filed all quarterly returns and made required deposits on time in the past three years. In Q2 2026, she missed a filing deadline by a few days. Under AEP, that delay would not trigger failure to file penalty if she meets eligibility—she doesn't need to ask for relief. Under the old FTA regime, she would’ve needed to file a request and explain.
Bottom line: if you’ve kept up your filings and payments, the IRS’s new policy removes a big barrier—no more reactive applications. Ask yourself: does my past track record reflect timely compliance? If yes—you're likely already protected.