Compliance
IRS Rolls Out Automatic Exemption from Penalty: What Taxpayers Need to Know
In summer 2026, the IRS replaced First Time Abate with a streamlined Automatic Exemption from Penalty (AEP) process. Here's how you qualify and what actions (if any) you need to take.
By NomadicTax Research Team • 5-8 min read • August 25, 2026
## 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](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
### 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](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
## 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](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
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](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
## 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](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
## 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](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
## 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.