Compliance
Maximizing the New IRS Automatic Penalty Relief: What US Taxpayers Need to Know
Learn how the IRS’s Automatic Exemption from Penalty (AEP) program is transforming relief for late filing, payment, or deposit, and whether you might qualify.
By NomadicTax Research Team • 5-7 min read • August 27, 2026
## What is AEP and Why It Matters
The IRS has launched a new program called the **Automatic Exemption from Penalty (AEP)**. Starting summer 2026, this replaces the long-standing First Time Abate (FTA) program for certain penalties on returns due from **tax year 2025 onward**. ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
Under AEP, the IRS will automatically **prevent certain penalties**—without any taxpayer request—if you have a history of timely filing and payment. You’ll get a notice that relief was granted, but no action is required from you. ([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))
## Who Qualifies and What Penalties Are Covered
**Eligibility criteria include:**
- For individual taxpayers: three prior years of **filed and paid on time**. ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
- For quarterly filers: a clean record over the prior **12 consecutive quarters**. ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
**Penalties AEP may cover:**
- Failure-to-file
- Failure-to-pay
- For businesses also: failure-to-deposit. ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
Some returns are excluded (e.g. Form 706, estate tax; Form 709, gift tax; information returns related to unusual transactions). ([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))
## When AEP Replaces First Time Abate
- **First Time Abate (FTA)** will be phased out during **summer 2026**, and fully replaced for **original returns due on or after January 1, 2027**. ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
- During transition, eligible taxpayers may still receive penalty notices due to delays or processing timing, but can request FTA where applicable. ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
## Practical Examples
- If you filed and paid all taxes for tax years 2022, 2023, and 2024 on time, and your 2025 return is late, AEP might exempt you from failure-to-file or failure-to-pay penalties. But interest still applies. ✍️
- If you run a small business and make timely quarterly deposits for 2025-2026, you may avoid failure-to-deposit penalties under AEP. 💼
- If you missed filing in one of the prior years, or have a history of delinquency, you must request relief the traditional way—by asserting “reasonable cause.”
## Actionable Steps
- Check your filing/payment history for the three prior years (or 12 prior quarters for businesses).
- If clean, expect IRS notice confirming relief—no need to file anything.
- If you received a penalty notice and think you qualify but didn’t get automatic relief, call the IRS number on the notice and ask about AEP or FTA eligibility. Keep documentation ready. ([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))
- Keep up timely filing and payment in 2025-2026 to qualify for relief for future periods.
## Why This Change Is Significant
- **Reduces burden**: eliminates need to proactively request relief in many cases.
- **Promotes fairness**: treats consistent compliance as basis for administrative relief. 🏅
- However, underlying taxes, interest, and non-eligible penalties still apply. AEP doesn’t erase those. ([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))
By understanding AEP, you can proactively avoid penalties and simplify your tax compliance journey under this new IRS framework.