Compliance

Mastering the New AEP: Penalty Relief Made Automatic

IRS’ Automatic Exemption from Penalty (AEP) replaces First Time Abate, offering eligible taxpayers penalty relief without having to ask—starting summer 2026.

By NomadicTax Research Team • 5-8 min read • August 10, 2026

## What Is the Automatic Exemption from Penalty (AEP)? AEP is a new IRS administrative relief program officially announced on July 8, 2026. It **automatically waives certain penalties**—such as failure to file, failure to pay, and failure to deposit—for taxpayers who have maintained a timely filing and payment history the previous three years (or twelve consecutive quarters for quarterly filers). No action is required from taxpayers who qualify. ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai)) ## Transition from First Time Abate (FTA) - FTA has been the go-to waiver program when you asked the IRS to remove penalties if you met eligibility criteria. Under AEP, many returns that would have qualified for FTA will receive relief automatically. ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai)) - AEP begins in **summer 2026**, and applies to **original returns for tax year 2025 and quarterly returns for 2026**, moving into future periods. FTA will continue during the transition, but AEP will officially **replace FTA for 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)) ## Who and What Is Eligible? To qualify, taxpayers must: - Have timely filed required returns and paid any tax due for the three prior years (for annual filers) or twelve consecutive quarters (for quarterly filers). ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai)) - Be using original returns (not amended). - Not fall under certain categories, such as event-based filing like Form 706 or Form 709, or penalties unrelated to failure to file/pay/deposit. ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai)) ## What Is *Not* Changed - **Interest** and non-eligible penalties still accrue; only specific penalties are relieved under AEP. ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai)) - Tax and any penalties or interest not under relief are still the taxpayer’s responsibility. ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai)) ## Implications & Actions - If you’ve been compliant over recent years, you could avoid certain penalties automatically—no request or petition needed. This is especially helpful if you missed filing deadlines in 2025 and qualify. - If you receive a penalty notice and believe you qualify for AEP but don’t see confirmation, contact the IRS using the number on that notice. ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai)) - Keep up good records of prior years’ filings and payments—eligibility hinges on timely compliance. ## Real-World Example Sarah is a sole proprietor who filed all her taxes on time and paid any due taxes for the years 2022–2024. In 2025, she files late due to illness, missing the April deadline by 30 days. Because of AEP, the **failure-to-file penalty** for her 2025 return isn’t assessed—Sarah doesn’t need to request relief; the IRS automatically applies AEP. ## Final Takeaways - AEP launches summer 2026 and applies to returns from tax year 2025 and quarterly 2026 returns—moving into future years under its eligibility framework. - Eligible taxpayers benefit from **automatic relief** from certain penalties without applying for it. - Good compliance history is more valuable than ever. - Stay alert: some penalty types and certain return categories remain **ineligible**. For tax filers and advisors, AEP is a big win in the effort to make tax administration more equitable and less burdensome.