What is the New Automatic Exemption from Penalty (AEP)?
The IRS announced a major change published in IR-2026-83 (July 8, 2026): instead of requiring taxpayers who have historically filed and paid on time to request relief via First Time Abate, the new Automatic Exemption from Penalty (AEP) is being implemented for eligible returns starting Summer 2026.(irs.gov)
Which Penalties Are Affected?
AEP covers certain penalties that would normally be assessed for:
- Failure to file returns on time
- Failure to pay taxes due
- Failure to make required deposits
These existing penalties will not be assessed if the taxpayer qualifies.(irs.gov)
Who Qualifies for AEP?
To be eligible, a taxpayer must demonstrate a history of timely compliance:
- For annual returns: timely filing and payment for the preceding three years
- For quarterly returns: timely compliance for 12 consecutive prior quarters
- Note: AEP applies starting with tax year 2025 and 2026 quarterly returns, as well as future periods.(irs.gov)
Some returns are excluded, such as those related to seldom-filed or informational returns like Form 706 (Estate Tax Return) or Form 709 (Gift Tax Return).(irs.gov)
No Action Required — IRS Takes Charge
If you meet the qualifications, you don’t have to apply: the IRS will automatically apply AEP during their processing, and you’ll receive a notice confirming relief.(irs.gov)
Transition of First Time Abate
First Time Abate is being phased out. After Summer 2026, AEP becomes the standard mechanism. If you previously relied on FTA, ensure you qualify for AEP going forward.(irs.gov)
Practical Examples
| Scenario | Pre-AEP (First Time Abate) | Under AEP |
|---|---|---|
| Filings unpaid two years ago, but consistent compliance in years −3, −2, −1 | Must request First Time Abate, might get relief | Automatically exempted, if eligibility met |
| Late filing in prior years | Typically disqualifies you | Same — eligibility depends on prior clean history |
| Nature of return (e.g. estate tax forms) | FTA could apply | Such returns may still be excluded |
What Should You Do?
- Review your filing history: If you've filed and paid on time in the past few years, you may already qualify.
- Keep documentation of late or missed filings or payments, in case IRS questions your status.
- Monitor your IRS notices: If you receive one about AEP eligibility (or ineligibility), follow up promptly.
Impact & Importance
- Compliance burden reduced: Less paperwork, fewer requests.
- Faster resolution: Penalties will be automatically waived for those eligible.
- Encourages consistent compliance: Maintaining a clean tax history now has additional benefits.
For full details, see IR-2026-83 on IRS.gov. This change is a boon if you keep your filings and payments in order.