Compliance
Maximizing Penalty Relief Automatically: Navigating the IRS’s New AEP System
The IRS’s new Automatic Exemption from Penalty (AEP) simplifies getting relief if you've been filing and paying on time—no more filing requests if you qualify.
By NomadicTax Research Team • 5-8 min read • July 19, 2026
## What Is the Automatic Exemption from Penalty (AEP)?
As of **summer 2026**, the IRS rolled out **AEP**, replacing the longstanding First Time Abate relief program. Under AEP, qualifying taxpayers will automatically receive relief from certain penalties without needing to file a request.([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
### Who qualifies?
- Individuals or entities who have **filed and paid all taxes due on time** for the **past three years** (for annual returns) or **12 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))
- Relief applies to penalties for **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))
- Returns tied to irregular or infrequent events—such as estate (Form 706) or gift (Form 709) returns—are **not eligible**.([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
### Transition timing & scope
- AEP relief begins for **original returns for tax years 2025 and 2026**, including quarterly returns filed in those periods.([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
- First Time Abate will be **phased out** over the summer. Some 2025/2026 returns may still receive FTAbate if qualifying and requested.([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
- While most qualifying returns will receive relief automatically, taxpayers will receive a notice confirming that AEP has been granted. No action required on their part.([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
## Why It Matters
**Benefits:**
- Fewer forms, fewer delays—no need to request relief manually for qualifying returns.
- More fairness—consistent application across similar taxpayers reduces chance that someone slips through the cracks due to lack of awareness or misunderstanding.
- Lower burden for both taxpayers and IRS processing.
**Limitations:**
- Still need to **file and pay all required returns on time** over the prior periods. A missed estimated payment or late quarterly return could knock you out of eligibility.
- Penalties beyond the scope of “failure to file/pay/deposit,” or returns not “original returns,” will still apply.
- Even when relief applies, interest on late payments is **not waived**. Full tax and interest are still due.
## Actionable Tips to Prepare
1. **Review your compliance history**. Check that your past three years’ annual returns and all quarters are up-to-date.
2. **Handle missing corners quickly**—file any late returns or pay tax due before AEP eligibility is assessed.
3. **Stay organized with deadlines**—mark due dates for ALL returns you are responsible for.
4. **Watch for the IRS notice** confirming automatic relief—retain it for records.
5. **If you don’t qualify**, know your next best move: request relief based on **reasonable cause.**
## Example Scenario
> **Sarah**, a freelancer, filed her 2022–2024 individual income tax returns and paid all their tax by deadline. She's also filed all quarterly estimated payments for 2025 and paid them timely. When she files her 2025 return in April 2026, the IRS **will automatically apply AEP**, and she won’t receive penalties for failure to file or pay (provided her return is original). She receives a confirmation notice.
On the flip side, **Brian** missed two quarterly payments in 2024. He’s disqualified from AEP until he regains three full years of clean compliance. He may apply for relief manually if he has reasonable cause.
## Bottom Line
AEP is the IRS’s streamlined penalty relief aimed at reward consistent compliance and reduce burdensome paperwork. Make sure your filing and paying history is clean, and you’ll benefit automatically—saving time, stress, and potentially thousands in penalties.