What Is the Automatic Exemption from Penalty (AEP)?
The IRS has officially replaced the longstanding First Time Abate relief with a new system—Automatic Exemption from Penalty, or AEP, announced July 8, 2026. (irs.gov) Under AEP, taxpayers who have shown a history of filing and paying on time in the three prior years (or 12 consecutive quarterly payments for business returns) automatically receive relief from certain penalties instead of having to submit requests for abatement. (irs.gov)
What Penalties Are Covered & Who Qualifies
AEP covers penalties for:
- Failure to file
- Failure to pay
- Failure to deposit
To qualify, you must have a solid history of compliance. That means:
- Originals returns on time and any tax due fully paid in the three previous years (for annual filings), or
- For quarterly returns, 12 straight quarters of on-time filing/payment. (irs.gov)
Note: Some returns are not eligible under AEP—like information returns, occasional transactions, Forms 706 and Form 709 (estate, gift/generation-skipping transfer returns). (irs.gov)
Effective Dates & What This Means for You
- AEP begins in summer 2026, applying to tax year 2025 original returns and 2026 quarterly returns. (irs.gov)
- After January 1, 2027, AEP will replace First Time Abate for eligible returns with original due dates on or after that date. (irs.gov)
- Until then, First Time Abate still applies in some cases. If you believe you qualify and didn’t get AEP, you can still request First Time Abate. (irs.gov)
Why This Is a Big Deal for Tax Planning & Compliance
- Less paperwork and hassle. You no longer have to submit a request—relief comes automatically if qualified. This removes a major barrier.
- Consistency and equity. Taxpayers with clean histories are treated fairly and reliably.
- Focus shifts. With fewer penalty disputes for eligible returns, more IRS resources can go elsewhere.
Actionable Takeaways
- Audit your filing/payment history. Confirm you meet the AEP criteria for years/quarters.
- Watch your returns now. For 2025 and 2026 (quarterly), submit on time and ensure payments are complete.
- Check notices. If AEP was applied, you should get a notice. If not, and you qualify, consider requesting First Time Abate while available.
- For businesses with quarterly filings, particularly check the 12-quarter window. Keep detailed documentation.
With AEP, the IRS gives compliance a boost—rewarding history, reducing defensive work, and simplifying administration. Tax professionals and individuals alike should integrate this into their compliance strategies moving forward.