Compliance
How the New AEP Automatic Penalty Relief Changes the Game for Late Filers
IRS’s Automatic Exemption from Penalty (AEP) replaces First Time Abate starting summer 2026—learn who qualifies, when it kicks in, and how to benefit.
By NomadicTax Research Team • 5-8 min read • July 14, 2026
## 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](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
## 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](https://www.irs.gov/payments/administrative-penalty-relief?utm_source=openai))
- You file during tax year **2025 or later**, including 2026 quarterly returns. ([irs.gov](https://www.irs.gov/payments/administrative-penalty-relief?utm_source=openai))
- 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](https://www.irs.gov/payments/administrative-penalty-relief?utm_source=openai))
## 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](https://www.irs.gov/payments/administrative-penalty-relief?utm_source=openai))
## 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](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
## 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.