Compliance
How to Leverage the New US ‘Automatic Exemption from Penalty’ for Clean Compliance
Starting summer 2026, US taxpayers with spotless filing histories can now receive **penalty relief automatically**, thanks to the IRS’s new Automatic Exemption from Penalty program. Here's what you need to know and how to qualify.
By NomadicTax Research Team • 5-8 min read • July 28, 2026
## What is the Automatic Exemption from Penalty (AEP)?
The **Automatic Exemption from Penalty (AEP)** is an IRS program introduced in **July 2026** that replaces the First Time Abate administrative relief. It provides **penalty relief automatically** for eligible taxpayers without the need for a formal request. ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
### Eligible penalties covered
- Failure to file returns
- Failure to pay taxes owed
- Failure to make required deposits
These apply for **original returns starting in 2025**, **quarterly returns in 2026**, and future periods. ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
## Who qualifies?
To be eligible for AEP, taxpayers must satisfy the following:
1. **Consistent compliance history** – you must have filed all returns and paid tax due in the **three previous years** or **12 consecutive quarters** for quarterly filers. ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
2. Be filing an **original return** (not amended or in response to audit).
3. Penalties must be within the categories AEP covers.
Returns like Estate Tax returns (Form 706) or Gift Tax returns (Form 709) are generally **not eligible**. ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
## Important dates to track
- **Summer 2026**: AEP begins applying to eligible returns. ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
- **January 1, 2027**: First Time Abate will be completely phased out and replaced by AEP for returns with due dates on or after this date. ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
## What to do now to benefit
- Review your filing history for the past three years or 12 quarters—ensure no missed returns or large unpaid liabilities.
- Continue paying taxes on time during this transition period.
- Keep documentation ready in case IRS requires it—especially for eligibility. Note: Even though relief is automatic, receiving a confirmation notice helps. ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
- For returns or quarters where you don’t qualify, First Time Abate might still be available until fully phased out. Apply where possible. ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
## Example
Suppose Sarah has filed every return for 2023, 2024, and 2025, and paid everything due. She files her **2026 quarterly return** on time—including required deposits. Under AEP, Sarah’s failure to file or pay or deposit penalties will be **wiped away automatically**. She won’t need to call or write the IRS asking for First Time Abate—though if she prefers, she can still use that for returns with due dates before January 1, 2027.
## Why it matters
- **Reduces stress and effort**: No more paperwork or formal request if you qualify.
- **Encourages timely compliance**: AEP rewards consistency.
- **Fairness**: Recognizes and respects taxpayers with strong histories.
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Stay current, file on time, and AEP could reduce or remove penalties you didn’t even know were coming!