Compliance
Maximizing Automatic Penalty Relief: What U.S. Taxpayers Need to Know
The IRS has introduced the Automatic Exemption from Penalty (AEP) to replace First Time Abate—eligible taxpayers need no longer request relief for penalties if they’ve kept up with returns and payments over recent years.
By NomadicTax Research Team • 5-8 min read • July 26, 2026
## What Is the Automatic Exemption from Penalty (AEP)?
AEP is a new IRS program set to begin Summer 2026 that automatically waives certain penalties for taxpayers who have consistently filed and paid on time over the past **3 years** (or **12 consecutive quarters** for quarterly filings). It replaces the First Time Abate (FTA) program. ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
## Key Dates & Eligibility
- Applies to **original returns** beginning with tax year **2025** and **2026 quarterly returns**. ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
- By **January 1, 2027**, AEP will fully replace FTA for returns with due dates on or after that date. ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
- Must have: 1) timely filing and paying history; 2) paid any tax due in full during prior years; 3) consistent behavior over required quarters if filing quarterly. ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
## What Penalties Are Covered
AEP will relieve penalties for:
- Failure to file returns
- Failure to pay taxes
- Failure to deposit required payments
Programs or returns **not eligible** include irregular filings like those for estates or gift taxes (e.g., Forms 706 and 709). ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
## Action Steps to Benefit from AEP
- **Do nothing** if you're already eligible—AEP is automatic.
- Review past tax history to ensure compliance. If you've missed payments or filing deadlines, you may not qualify.
- If a penalty notice arrives and you believe you meet eligibility, contact the IRS—especially during the transition period when FTA may still apply. ([taxpayeradvocate.irs.gov](https://www.taxpayeradvocate.irs.gov/news/nta-blog/a-long-awaited-taxpayer-win-the-irs-implements-automatic-penalty-relief/2026/07/?utm_source=openai))
## Why This Matters
- **Reduced burden**: Taxpayers no longer need to submit formal requests under FTA.
- **Fairer treatment**: Encourages compliance by recognizing those who consistently meet tax obligations.
- **More certainty**: Predictable relief for small errors so long as compliance is maintained.
## Example Scenario
Mary files quarterly. She has submitted **12 consecutive quarterly returns**, paid all taxes due, without penalties, for the last three years. She misses one quarterly deposit in 2025 but otherwise is spotless. Under AEP, assuming this type of failure is eligible to be waived, she may receive **no penalty** for that missed deposit under AEP, and the IRS will issue notice confirming relief. If not eligible, she must still pay interest and may need to seek relief under reasonable cause. ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
**Bottom line:** Review your compliance status now. A clean record means hands-off relief starting mid-2026. Stay alert if you're close to eligibility thresholds.