Compliance
How U.S. Taxpayers Can Benefit from the Automatic Exemption from Penalty (AEP) Program
A new IRS policy means many taxpayers no longer need to apply for First Time Abate relief—penalty relief is now automatic for those with solid compliance history.
By NomadicTax Research Team • 5-8 min read • August 1, 2026
## What is AEP? Automatic Exemption from Penalty (AEP) is a newly introduced IRS program replacing First Time Abate (FTA). Under AEP, if you’ve filed and paid on time for three prior years (or 12 consecutive quarters for quarterly returns), certain penalties—failure to file, pay, or deposit—will **not** be assessed automatically when eligible returns are processed. ([irs.gov](https://www.irs.gov/newsroom/automatic-exemption-from-penalty-what-taxpayers-should-know?utm_source=openai))
## Key Dates & Transition Period
| Period | Status |
|--------|--------|
| Tax-year 2025 returns & 2026 quarterly returns | AEP applies automatically—FTA still exists if you request it for eligible returns processed before AEP starts ([irs.gov](https://www.irs.gov/newsroom/automatic-exemption-from-penalty-what-taxpayers-should-know?utm_source=openai)) |
| Returns and due dates on or after Jan 1 2027 | AEP fully replaces FTA. FTA no longer available. ([irs.gov](https://www.irs.gov/newsroom/automatic-exemption-from-penalty-what-taxpayers-should-know?utm_source=openai)) |
## Who Qualifies?
To be eligible under AEP, you must:
- Have filed required returns, paid taxes due, and made required deposits on time for the **three prior years**, or 12 consecutive quarters if you file quarterly
- Be making an **original return** (not amended)
- Not rely on infrequent or event-only filings (e.g. **Form 706 or 709**) which generally are **not eligible** under AEP ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
## What Penalties Are Covered (and What Are Not)?
**Covered:**
- Failure-to-file penalty
- Failure-to-pay penalty
- Failure-to-deposit penalty ([irs.gov](https://www.irs.gov/newsroom/automatic-exemption-from-penalty-what-taxpayers-should-know?utm_source=openai))
**Not covered:**
- Daily delinquency penalties
- Accuracy-related penalties
- Information-reporting penalties
- Returns submitted only due to specific transactions or infrequent events ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
## What Taxpayers Should Do
- **No action required**: If eligible, you'll receive a notice confirming penalties were not assessed. AEP is automatic. ([irs.gov](https://www.irs.gov/newsroom/automatic-exemption-from-penalty-what-taxpayers-should-know?utm_source=openai))
- **If you get a penalty notice** for a return you believe should be covered under AEP, call the IRS and request a review. FTA or reasonable-cause relief may still apply during the transition. ([taxpayeradvocate.irs.gov](https://www.taxpayeradvocate.irs.gov/news/nta-blog/a-long-awaited-taxpayer-win-the-irs-implements-automatic-penalty-relief/2026/07/?utm_source=openai))
- Keep excellent records of your compliance history — copies of timely filed returns, payment receipts, deposit records — in case the IRS requests verification.
## Practical Example
**Scenario:** Jane files individual returns every year and has paid all tax debts, deposits, and filings on time for 2022-2025. But in Q2 2026, she misses an estimated tax payment deadline.
- Under FTA (old system): Jane would need to request relief via FTA, explaining her situation.
- Under AEP (new system): Jane automatically qualifies, so for her 2026 quarterly return she will **not** be assessed the failure-to-pay penalty, assuming other eligibility criteria met. Jane will receive a notice confirming no penalty assessed.
## Why AEP Matters
- Reduces administrative burden on taxpayers who simply didn’t know about FTA or couldn’t make the request.
- Helps low-income taxpayers who may lack access to professional tax advice.
- Improves equity and fairness by applying relief transparently.
## Keep In Mind
- Even with AEP, you still owe interest, tax, and any penalties **not eligible** for AEP.
- Late filing still carries consequences in some contexts (e.g., refunds, claims expired).
- Always verify receipt of required payments and filings.
**Bottom Line:** If you’ve got a clean record over the past few years, AEP makes life easier. You may not have to worry about small slips in filing or deposits like before—as long as you still file, pay, and deposit when required.