Compliance
IRS’s New Automatic Penalty Relief: Simplifying Compliance for Global Filers
IRS introduces Automatic Exemption from Penalty (AEP), replacing First Time Abate, easing compliance burden for those with consistent filing histories.
By NomadicTax Research Team • 5-8 min read • September 7, 2026
## What is AEP and what changed?
The United States Internal Revenue Service (IRS) has phased in the **Automatic Exemption from Penalty (AEP)** program in **Summer 2026**, replacing the First Time Abate (FTA) program for eligible returns due on or after **January 1, 2027**. Under AEP, if you have a history of filing and paying taxes on time, certain penalties will automatically be lifted without needing to apply. ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
## Who qualifies for AEP?
- **Individual taxpayers**: must have timely filed & paid tax due for the prior **three years**.
- **Business/quarterly filers**: need a timely compliance history for the prior **12 consecutive quarters**.
- **Ineligible**: certain forms (such as estate or gift tax returns), or transactions tied to specific substantive events. ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
## What penalties are covered
- Failure-to-file
- Failure-to-pay
- Failure-to-deposit (for business returns)
Rules for ineligible forms or claims due to specific events still apply; penalty relief does not cover underlying tax or interest. ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
## Why this is important for global taxpayers
- Cross-border workers or expatriates who file U.S. returns might miss deadlines—if compliant for years past, AEP could protect them.
- Individuals subject to reporting requirements (e.g., for foreign investments or overseas income) can benefit by avoiding penalties even if minor missteps occur—if they have a clean record.
- Global firms with U.S. operations may find relief for subsidiary or local unit penalties if they meet compliance history thresholds.
## Practical Tips to Leverage AEP
- Keep records of timely filings; delay or missed deadlines could disqualify you for years.
- Review your history now—if you qualify, align future returns to avoid penalty exposure.
- For global entities, ensure that U.S.-tied branches/entities whose returns are subject to U.S. tax comply with local U.S. filing and payment requirements.
## Transition from FTA to AEP
During a phase-in period, FTA may still apply for some returns; but from January 1, 2027 onwards, AEP will fully replace FTA for eligible returns. Be aware of when returns are “due” dates governed by those rules. ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))