What is Automatic Exemption from Penalty (AEP)?
- AEP is a new IRS system initiated in summer 2026 that automatically extends penalty relief to taxpayers who have consistently filed on time and paid taxes due. (irs.gov)
- It replaces the First Time Abate (FTA) program for original returns due on or after January 1, 2027. (irs.gov)
Who qualifies
- Individuals who filed and paid on time for the prior three years. For quarterly filers, that's timely compliance for 12 consecutive quarters. (taxpayeradvocate.irs.gov)
- Returns by taxpayers without a strong compliance history aren’t eligible. Some forms—such as Form 706 (Estate Tax Return) and Form 709 (Gift Tax Return)—are generally excluded. (taxpayeradvocate.irs.gov)
What penalties are covered
- Eligible individual taxpayers: failure-to-file and failure-to-pay penalties. (irs.gov)
- Eligible business taxpayers: adds failure-to-deposit penalties to the list. (irs.gov)
- Note: Relief only on penalties—not on interest, underlying taxes, or non-covered penalties. (irs.gov)
Practical steps & tips
- Do nothing, if you already have a clean record. The IRS will identify you and apply AEP automatically. (irs.gov)
- If you're uncertain about eligibility, check payments and filings for past years.
- If you don’t qualify, you can still request relief under reasonable cause rules. (taxpayeradvocate.irs.gov)
Example
Jane filed her Form 1040 & paid all taxes on time for tax years 2022–2024. Her 2025 return is processed correctly, and she meets availability rules. Under AEP, no failure-to-file or failure-to-pay penalties will be assessed for 2025—no action needed.
Implications & takeaways
- Great relief for compliant taxpayers: less worry about losing coverage under FTA or needing to ask for remediation.
- Reduces the burden on IRS and taxpayers: fewer manual requests, more fairness.
- Keep records clean: any misses in filing or payment can disqualify you for this relief period.
Actionable checklist
- Review your filings/payments for last 3 full years (or 12 quarters).
- Make sure there are no missing returns or late payments.
- Maintain good record-keeping and promptly pay tax liabilities.
- If you know you're disqualified but believe you have reasonable cause, prepare documentation for that request.
AEP offers a simpler, fairer way to shield compliant taxpayers from certain penalties. It’s a change worth knowing about—especially if you’ve already done your tax homework.