Compliance
Maximizing Tax Relief with the IRS’s New Automatic Exemption from Penalty
Discover how the IRS’s new Automatic Exemption from Penalty (AEP) program can save compliant taxpayers from penalties without needing to file requests.
By NomadicTax Research Team • 5-8 min read • August 3, 2026
## What is AEP?
Starting **summer 2026**, the IRS is replacing the First Time Abate (FTA) program with the **Automatic Exemption from Penalty (AEP)**. Under AEP, taxpayers who have a strong history of filing and paying taxes on time will receive relief from certain penalties **automatically**, without needing to request the relief.([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
## Who qualifies?
To be eligible for AEP, a taxpayer must meet either of these criteria:
- Have timely filed and paid all required taxes for the **past three years** (for annual returns).
- For quarterly filers, have timely filed and paid for **12 consecutive quarters**.([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
## What penalties are covered?
If eligible, the IRS will **not assess** penalties for:
- Failure to file
- Failure to pay
- Failure to deposit
However, note: penalties not eligible for relief, interest on the tax due, and any taxes themselves still apply.([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
## When does it start & what’s phasing out?
AEP applies to:
- Original returns for **tax years 2025** and beyond
- Quarterly returns starting with **2026\** quarters and beyond([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
The First Time Abate relief will be phased out. For returns with original due dates **on or after January 1, 2027**, AEP will replace FTA entirely. During the transition period, some qualifying taxpayers might still get FTA if they don’t yet meet AEP’s criteria.([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
## Practical example
**Case A:** Jane filed her 2022, 2023 returns on time and paid any taxes due. For 2024 and her quarterly 2025 filings, she also met all filing and payment deadlines. If Jane files her 2025 return late, under AEP she could avoid late‐filing or late‐payment penalties automatically.
**Case B:** Bob missed making a quarterly estimated payment in 2024. Although he’s otherwise timely, this missed quarter breaks the 12‐consecutive‐quarters requirement. Bob won’t qualify for AEP until he reestablishes a clean record for 12 straight quarters. He may still request relief under “reasonable cause.”
## Action steps to take now
- Check your tax history to verify you’ve filed and paid on time (for annual returns or relevant quarters).
- Keep excellent records of all filing dates and payments – in case you need to prove eligibility.
- If you believe you qualify but receive penalty notices for returns after summer 2026, contact the IRS to request correction. AEP is designed to reduce taxpayer burden, not increase it.([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
**Key takeaway:** AEP lightens the load for taxpayers with strong compliance, simplifying relief from penalties—so long as your tax track record is clean.