Compliance
Mastering the Automatic Exemption from Penalty (AEP): Say Goodbye to First Time Abate
Starting Summer 2026, AEP simplifies penalty relief for compliant U.S. taxpayers, removing the need to request relief manually under FTA.
By NomadicTax Research Team • 5-8 min read • September 13, 2026
## What is AEP and why it matters
The **Automatic Exemption from Penalty (AEP)** is a new IRS administrative relief program that begins in Summer 2026. It replaces First Time Abate (FTA), making penalty relief automatic for taxpayers with a consistent history of timely filing and payment. Under AEP, qualifying taxpayers won't need to **request relief manually**—just meet the eligibility requirements and the IRS does the rest. ([irs.gov](https://www.irs.gov/payments/administrative-penalty-relief?os=vbkn42tqhoorjmxr5b&utm_source=openai))
## Eligibility: Are you in?
To qualify for AEP, you must:
- Have filed and paid required federal taxes on time for the **three prior years** (or 12 consecutive quarters for quarterly filers) ([irs.gov](https://www.irs.gov/payments/administrative-penalty-relief?os=vbkn42tqhoorjmxr5b&utm_source=openai))
- Be filing an eligible original return—such as Form 1040, 1040 series, Forms 1120, 1065, 940, 941, 943, 944, 945, or CT-1 ([irs.gov](https://www.irs.gov/payments/administrative-penalty-relief?os=vbkn42tqhoorjmxr5b&utm_source=openai))
- File by the due date (inclusive of extensions) ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
Not eligible:
- Information returns or event-triggered filings, like Form 706 (estate tax), Form 709 (gift tax), or rare excise returns ([irs.gov](https://www.irs.gov/payments/administrative-penalty-relief?os=vbkn42tqhoorjmxr5b&utm_source=openai))
- Some quarterly returns may not yet be processed under AEP during the transition period in 2026 ([irs.gov](https://www.irs.gov/pub/foia/ig/spder/sbse-20-0626-0643.pdf?utm_source=openai))
## Key dates and transition timeline
| Period | Relief Program in Effect |
|---|---|
| Tax years through **2024** | FTA only; AEP **not yet applied** ([irs.gov](https://www.irs.gov/payments/administrative-penalty-relief?os=vbkn42tqhoorjmxr5b&utm_source=openai))|
| **2025 tax year** & **2026 quarterly returns** during transition | AEP begins Summer 2026; some returns may still use FTA depending on processing timing ([irs.gov](https://www.irs.gov/pub/foia/ig/spder/sbse-20-0626-0643.pdf?utm_source=openai))|
| Returns due **Jan 1, 2027 or later** | FTA fully replaced by AEP; no new FTA requests will be accepted for these return due dates ([irs.gov](https://www.irs.gov/pub/foia/ig/spder/sbse-20-0626-0643.pdf?utm_source=openai))|
## What penalties are avoided under AEP?
AEP prevents assessment of certain penalties during the processing of eligible returns, including:
- Failure to file penalties (IRC 6651(a), 6698, 6699)
- Failure to pay penalties (IRC 6651(a)(2) & (3))
- Failure to deposit penalties (IRC 6656)
It does **not** stop interest accrual, nor does it cover penalties unrelated to filing, paying, or depositing. If AEP doesn’t apply, taxpayers can still seek relief using “reasonable cause” provisions. ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
## Practical Examples
**Scenario 1**: Jane has filed and paid her taxes on time for 2022-2024. She files her 2025 return late (but with payment also late) in June 2026. Under AEP, penalties for failure to file/pay are waived automatically at processing. She’ll receive a notice confirming AEP was applied. No action needed. ([irs.gov](https://www.irs.gov/payments/administrative-penalty-relief?os=vbkn42tqhoorjmxr5b&utm_source=openai))
**Scenario 2**: Albert missed paying taxes on time in 2024, but was timely in 2022 & 2023. He files his 2025 return late. He doesn’t qualify for AEP due to a break in compliance. He may request FTA for 2025 but must follow the old process. Beginning with returns due in 2027, FTA will no longer be available. ([irs.gov](https://www.irs.gov/pub/foia/ig/spder/sbse-20-0626-0643.pdf?utm_source=openai))
## Action steps for taxpayers and advisors
- **Check compliance history**: confirm three consecutive years of timely filing and paying, or 12 clean quarters if quarterly filer.
- **Watch your eligible return types**: gross income returns, corporate returns, payroll deposit forms—all may become AEP-eligible.
- **Expect notices**: after processing, IRS will notify you if you qualified for AEP and penalties were not assessed.
- **Still file gift or estate returns as needed**: if submitting returns like Form 709, they aren’t eligible for AEP relief. Ensure you comply under those separate rules.
- **Recordkeeping** becomes more important: proof of timely compliance may be needed if IRS believes AEP should have been applied but wasn’t. Advisors help clients keep prior year records accessible.
## Implications & benefits
- **Relief without requests**: removes burden to apply for FTA.
- **Consistency** in penalty relief decisions across similar taxpayers.
- **Reduced taxpayer stress**: no surprises or notice-letter requests for AEP.
- **Increased importance of being timely now**: any slip in filing or paying in priority years may make you ineligible.
## Caveats & exceptions to keep in mind
- Even under AEP, late returns can still generate **interest and unpaid tax liability**.
- Relief doesn’t apply to **information returns** or irregular filings.
- FTA still exists for older returns or during the transition, but for returns due on/after **January 1, 2027**, FTA is gone.
- Some returns filed in the transition period **might still default** to FTA based on processing timing. If you receive a penalty, check whether AEP should have applied and contact the IRS if needed. ([irs.gov](https://www.irs.gov/pub/foia/ig/spder/sbse-20-0626-0643.pdf?utm_source=openai))
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**Bottom line**: AEP is here to make penalty relief automatic for those who have shown dependable compliance. If you’ve got your paperwork in order—especially for recent years—relief could be on its way without lifting a finger.