Background
The IRS introduced the Automatic Exemption from Penalty (AEP) in a major policy shift (IR-2026-83, July 8, 2026). Taxpayers with a strong history of filing and paying on time no longer need to request relief via the old First Time Abate (FTA) system; the IRS will automatically waive certain penalties for eligible returns. (irs.gov)
Who Qualifies for AEP
You may be eligible for automatic penalty relief (AEP) if:
- You have timely filed returns and paid taxes due in the prior three years, or for quarterly filers, timely filed/payments over 12 consecutive quarters. (irs.gov)
- You file during tax year 2025 or later, including 2026 quarterly returns. (irs.gov)
- Your return type is eligible—this includes Forms 1040, 1120, 940/941/943/944/945. Small scope rules apply: information-only returns, estate/gift tax returns, returns filed in response to infrequent or special events typically aren’t eligible. (irs.gov)
What Penalties Are Covered
AEP prevents assessment of:
- Failure to file penalties
- Failure to pay penalties
- Failure to deposit penalties
Additionally, taxpayers don’t need to take action to receive the relief; the IRS will apply AEP automatically if criteria are met. (irs.gov)
What’s Changing—and What’s Similar
| Element | Under First Time Abate | Under AEP |
|---|---|---|
| How Relief Initiated | Taxpayer requests relief | Relief applied automatically |
| Eligible Periods | Prior tax years & some recent quarterly periods | Returns filed 2025+, all eligible quarterly returns in 2026+ |
| Penalties Covered | Failure to file, pay, etc. (after request) | Same set, but no request needed |
FTA won’t disappear immediately—it’s being phased out over summer 2026. During the transition period, some qualifying taxpayers may need to request FTA if notified or assessed a penalty before AEP takes effect. (irs.gov)
Examples and Action Steps
Example 1: Jane filed her 2023, 2024, and 2025 returns on time, paid any taxes due. In Q1 2026 she missed a deposit deadline by a few days. If she meets AEP criteria, the IRS should not assess a penalty for the missed deposit when processing her eligible return. Jane doesn’t need to reach out—the IRS should apply relief automatically.
Example 2: Martin had late payments in 2022 but has been compliant since. He files a 2025 return and is late with it. Since his prior three‐year history includes a non-compliant year, he likely does not qualify for AEP and may need to request relief under the traditional reasonable cause process.
Action Items
- Review your filing history for the last three years or 12 quarters. Make sure your records are clean—no lost returns or past due payments.
- If your return has been processed and you believe you should’ve gotten AEP relief but didn’t, use the IRS contact mechanisms to request review.
- Stay alert for IRS notices—if relief is applied, they'll send a confirmation. If not, make sure to understand why.
Key Takeaways
- AEP simplifies penalty relief and reduces taxpayer burden.
- Being in good standing — with timely filing and payment history — becomes more beneficial than ever.
- Print and keep records of compliance; documentation may still matter for edge cases (e.g. for reasonable cause if not eligible).
Fit for: Individuals, small business owners, or anyone with a regular tax filing history. If you’ve been consistent, your past discipline now directly earns you automatic relief under AEP.