Compliance
IRS’s Automatic Penalty Relief (AEP): What It Means & How to Qualify
The IRS is replacing First Time Abate with Automatic Exemption from Penalty for compliant taxpayers—here’s how it works and what to watch out for.
By NomadicTax Research Team • 5-8 min read • September 16, 2026
## The Shift from First Time Abate to AEP
Starting summer 2026, the IRS will begin rolling out the **Automatic Exemption from Penalty (AEP)**. This new process replaces the First Time Abate (FTA) for eligible federal return penalties like:
- Failure to file
- Failure to pay
- Failure to deposit
Taxpayers who file timely, and pay any tax due **on time** for the past three years—or 12 consecutive quarterly returns for quarterly filers—will qualify. You won’t need to request relief; the IRS will apply it automatically. ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
## Key Impacts on Compliance Behavior
- **Reduced administrative burden**: No more petitions or paperwork for those who meet AEP rules.
- **Consistent application**: Anyone who meets the criteria is treated similarly.
- **Phase-out of FTA**: Existing First Time Abate requests will still be considered during transition, but AEP becomes the primary avenue for relief starting with returns with due dates **on or after January 1, 2027**. ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
## What Disqualifies You from AEP
- Returns that are informal or appear only due to specific one-off events (e.g., estate tax returns like Form 706 or gift tax Form 709).
- Failing to meet the history requirement: less than three taxable years of full compliance, or for quarterly filers, fewer than 12 straight quarters without delinquency.
## Actionable Steps for Taxpayers
1. **Check your record**: Ensure all federal returns for 2023–2025 are filed and taxes paid. If you pay quarterly, ensure 12 consecutive on-time quarters.
2. **Don’t rely on it for all situations**: If you already missed deadlines, you may need to show ‘reasonable cause’.
3. **Watch the timeline**: Returns due **in 2027** and beyond will all fall under AEP for eligible taxpayers.
4. **Monitor IRS notices**: If you qualify, the IRS may send a notice confirming exemption. If not, you may be eligible for traditional relief methods.
## Example Situation
Marcus has filed timely returns for 2023–2025 with all taxes paid, and has kept up quarterly installment payments through 2026. His 2025 return mistakenly included a late payment. Because the failure-to-pay penalty was assessed during processing for 2025, he **won’t be eligible** for AEP for 2025 penalties—but assuming no other missed payments, his 2026 return (filed in 2027) should be eligible.
## Bottom Line
AEP aims to streamline penalty relief and reward consistent compliance. If your tax history is clean over recent years, you’ll likely benefit—and may not need to ask for relief at all.