Compliance
Mastering the New Automatic Exemption from Penalty (AEP): What Every Taxpayer Needs to Know
The IRS has replaced First Time Abate with an Automatic Exemption from Penalty, offering eligible filers penalty relief without having to ask—starting in summer 2026.
By NomadicTax Research Team • 5-8 min read • July 9, 2026
## What the AEP Change Is
As of **IR-2026-83**, published July 8, 2026, the IRS announced a new relief program called **Automatic Exemption from Penalty (AEP)**. It’ll simplify how penalty relief is delivered. Rather than taxpayers requesting First Time Abate (FTA), the IRS will automatically grant relief for certain penalties for those with a record of timely filing and paying taxes. ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
## Who Qualifies for AEP
To be eligible for AEP, you must meet specific compliance criteria:
- For original returns: timely file and pay tax due in the **three prior years**.
- For quarterly returns: maintain timely compliance for **12 consecutive prior quarters**.
- Covered penalties include **failure to file**, **failure to pay**, and **failure to deposit** in many cases. ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
## Effective Dates & Transition from First Time Abate
AEP starts in **summer 2026**. It will apply to returns with due dates (original due dates) on or after **January 1, 2027**, replacing FTA for those periods. For tax years 2025 and 2026 returns, FTA is still available during the transition. ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
## What This Means in Practice
| If you are… | What you used to do (FTA) | What you’ll do under AEP |
|-------------|----------------------------|----------------------------|
| An individual taxpayer, compliant past 3 years | File request for First Time Abate | Nothing—if eligible, IRS grants relief automatically |
| Business with quarterly filings | Track compliance, file waiver requests | Relief automatic if past 12 clean quarters |
### Examples
**Example 1**: Jane files her 2025 Form 1040 and paid all taxes due in 2022-2024. Under AEP starting summer 2026, Jane won’t need to request First Time Abate for any eligible penalties for her 2025 or later returns.
**Example 2**: A small business has been current on its deposits and payments through 2024. For quarterly returns in 2025-26, once the return is filed original and not late, they’ll be eligible under AEP.
**Example 3**: A taxpayer with a single missed payment or filing in the past three years won’t qualify for AEP but can still pursue **reasonable cause relief**. FTA won’t apply if compliance history fails
ationale.
## Actionable Advice
- **Review your past 3 years** (or 12 quarters); note any late filings, payments, or deposits that might disqualify you.
- **File returns and pay taxes on time** moving forward—clean history is essential.
- **From Jan. 1, 2027 onward**, FTA will be phased out for returns with original due dates on or after that date.
- If you believe you qualify under AEP but still receive penalties, contact the IRS to correct the error.
- Maintain documentation—copies of returns, payment records, deposit receipts—in case of audit questions.
## Key Takeaways
- AEP removes the burden of applying for relief for eligible taxpayers, promoting fairness.
- It applies automatically for those who have kept tight compliance over the prior years/quarters.
- FTA isn’t gone yet—but only returns with original due dates **before** Jan. 1, 2027 may still use First Time Abate.
**Bottom line:** Under AEP, the effort has shifted away from requesting relief toward staying compliant. If you’ve been timely, you’ll benefit—without needing to take extra steps.