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)
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)
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)
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)