What’s Changing
On July 8, 2026, the IRS announced that taxpayers with a history of timely filing and paying tax will now receive penalty relief automatically, under the Automatic Exemption from Penalty (AEP) program.(irs.gov) This replaces the older First Time Abate (FTA) process, simplifying compliance and reducing the administrative burden. AEP starts applying to eligible original returns for tax year 2025, eligible quarterly returns for 2026, and later tax periods.(irs.gov)
Who Qualifies
Eligible taxpayers are those who, for the three prior years (or 12 consecutive quarters for quarterly filers), have filed their returns and paid any tax due on time. Under AEP, penalties for failure to file, failure to pay, and failure to deposit will be waived without the taxpayer needing to ask.(irs.gov)
However, there are exclusions: some returns are not eligible—such as information returns, or returns tied to infrequent events or specific transactions, like Form 706 (Estate Tax) or Form 709 (Gift Tax).(irs.gov)
Transition Timeline
| Period | What Happens |
|---|---|
| Summer 2026 | AEP becomes effective; IRS begins applying it automatically where criteria met. |
| Tax year 2025 & 2026 returns | Eligible taxpayers may still see FTA notices during transition; taxpayers who qualify may still request FTA if needed.(irs.gov) |
| On or after January 1, 2027 | AEP replaces First Time Abate entirely for returns with original due dates. |
Practical Examples
- Example 1: Jane has filed and paid taxes on time for 2022, 2023, 2024. She files her 2025 return late due to a major health issue. Under AEP, the failure-to-file penalty would be automatically waived—no action required from Jane. But she would still owe any interest and underlying tax. |
- Example 2: Sam, a quarterly filer, met all 12 quarters of filing and payment deadlines. If he misses a quarterly tax deposit, he qualifies under AEP and should expect no failure-to-deposit penalty if criteria are met. |
What You Should Do Now
- Review your compliance history—for at least the past three years (or past 12 quarters for quarterly filings).
- Continue filing and paying on time to remain eligible.
- If you previously benefited from First Time Abate, understand that AEP may replace it soon.
- Maintain strong documentation—while AEP is automatic, having records ready helps resolve any eligibility questions.
Implications
- Reduced burden: no longer needing formal requests for penalty relief in many cases. |
- Fairness: taxpayers with clean records will be recognized systematically. |
- Risk of missing the benefit: if taxes or filings were missed in prior years, you may not qualify—review past compliance. |
- Other penalties & interest still apply: AEP doesn’t eliminate those. |
In short: For those who have reliably filed and paid taxes promptly, the Automatic Exemption from Penalty is a welcome simplification. But it’s essential to keep up with your filings and payments to stay in the eligibility zone.