Compliance
Mastering the New Automatic Penalty Relief: Your Peace of Mind Transition from First Time Abate
IRS’s new Automatic Exemption from Penalty (AEP) is replacing First Time Abate, meaning if you’ve been compliant historically, penalties may simply never hit—no case-drafting necessary.
By NomadicTax Research Team • 5-8 min read • August 31, 2026
## What is the Automatic Exemption from Penalty (AEP)?
Beginning in **summer 2026**, the IRS launched the **Automatic Exemption from Penalty (AEP)** program, which streamlines relief for taxpayers who consistently file and pay their taxes on time. Rather than requesting relief under *First Time Abate (FTA)*, under AEP you **no longer need to contact the IRS**—the system will automatically apply eligible relief when returns meet certain compliance criteria. ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
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## Who qualifies, and for what penalties?
- **Individuals**: timely filed returns and paid all tax due for the three prior years. Penalties automatically eligible for relief include **failure-to-file** and **failure-to-pay**. ([taxpayeradvocate.irs.gov](https://www.taxpayeradvocate.irs.gov/news/tax-tips/tips-for-taxpayers-who-may-qualify-for-automatic-penalty-relief/2026/08/?utm_source=openai))
- **Businesses**: similar history requirement, covering three prior years (or 12 consecutive quarters for quarterly filers). Penalties covered include **failure-to-file**, **failure-to-pay**, and **failure-to-deposit**. ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
- **Ineligible returns/penalties**: certain types like **Form 706**, **Form 709**, and returns filed only because of a specific transaction or rare events generally don’t qualify under AEP. ([taxpayeradvocate.irs.gov](https://www.taxpayeradvocate.irs.gov/news/tax-tips/tips-for-taxpayers-who-may-qualify-for-automatic-penalty-relief/2026/08/?utm_source=openai))
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## Key Dates & Transition Details
| Period | Rule in Place |
|--------|---------------|
| Original returns due starting **January 1, 2025** & 2026 quarterly returns | AEP applies to eligible returns without action. ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai)) |
| **On or after January 1, 2027** | AEP fully replaces FTA. FTA requests still possible during transition. ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai)) |
If you receive a penalty notice, check whether you’ve received a separate IRS notice confirming AEP relief. If not, you may still qualify under FTA or via a *reasonable cause* claim. ([taxpayeradvocate.irs.gov](https://www.taxpayeradvocate.irs.gov/news/tax-tips/tips-for-taxpayers-who-may-qualify-for-automatic-penalty-relief/2026/08/?utm_source=openai))
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## What to Do: Pro Tips
- Keep up with filing & paying your taxes on time! That three-year history really matters.
- Monitor IRS notices—if you don’t see the AEP relief notification, you may need to act. FTA is still available during the transition.
- Maintain documentation in case you need to prove your compliance history or submit a reasonable cause request.
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## Example Scenario
**Sarah**, a sole proprietor, has filed her 2022-2024 returns timely and paid in full. In Q1 2026 she forgot a quarterly deposit and is facing a **failure-to-deposit penalty**. Under AEP, **if** she satisfies the 12 consecutive quarters rule as a quarterly filer she may receive automatic relief—even without filing a petition or contacting the IRS. If she’s missing the clean compliance history, she may request relief under FTA or provide reasonable cause.
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## Why This Matters for Tax Planning
- Reduces administrative burden and uncertainty—no more scrambling to file FTA requests.
- Helps avoid surprises: better to stay in compliance now and enjoy the automatic benefit later.
- For businesses with many returns or many employees, systems and operations should be reviewed to avoid missing payments, deposits or due dates.
**Bottom line**: AEP is the IRS saying—**good behavior pays off**. If you've kept up with your filings and payments, the IRS is now doing some of the heavy lifting for you.