Compliance
Navigating IRS’s New Automatic Exemption from Penalty (AEP): What Every Taxpayer Must Know
The IRS has replaced First Time Abate with an automatic, no-request-required penalty relief starting in summer 2026—saving time, paperwork, and money for those with solid compliance history.
By NomadicTax Research Team • 5-8 min read • August 14, 2026
## What Is the Automatic Exemption from Penalty (AEP)?
AEP is a new systemic administrative relief program the IRS is rolling out in **summer 2026**. Designed for taxpayers with a strong track record—timely filing and payment over the past three years for annual returns, or 12 consecutive quarters for quarterly filings—AEP means certain penalties will simply not be assessed during original return processing. You don’t have to ask. It’s automatic. ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
Unlike First Time Abate (FTA), which required filed requests for eligible returns, AEP will become the standard for qualifying returns with due dates **on or after January 1, 2027**. Until then, FTA still applies if you qualify. ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
## What Penalties Are Covered—and What’s Not
These are the penalty types AEP can prevent if eligible:
- **Failure to file** penalties
- **Failure to pay** penalties
- **Failure to deposit** penalties (for those with withholding or estimated tax/deposits) ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
Note: AEP doesn’t eliminate tax and interest owed. And not all return types are eligible—for instance, estate (Form 706) or gift (Form 709) returns and infrequent or special transactions generally don’t qualify. ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
## Who Qualifies
You may be eligible if:
- You’ve filed and paid on time for the **three tax years preceding** the year of the return. For quarterly returns, that’s **12 consecutive quarters**. ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
- You generally have no significant or repeated penalty issues—i.e., a clean or nearly clean compliance history. One-time missteps may still allow qualification. ([irs.gov](https://www.irs.gov/newsroom/automatic-exemption-from-penalty-what-taxpayers-should-know?utm_source=openai))
AEP will begin affecting original returns filed for tax year 2025 and for 2026 quarterly and annual returns. FTA remains available until AEP fully replaces it. Once AEP starts for a return with a due date on or after January 1, 2027, you won’t have FTA available. ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
## What This Means for You—Actionable Insights
- Stay consistent: Pay and file on time. You won’t receive relief if your history is spotty. Late or missing payments or filings in past years can disqualify you.
- Log the good stuff: If you expect AEP to apply, retain proof of your compliance history—it’s how the IRS will know you qualify.
- Watch for notices: If eligible, you’ll receive a notice confirming relief was granted. You don’t need to initiate anything. ([irs.gov](https://www.irs.gov/newsroom/automatic-exemption-from-penalty-what-taxpayers-should-know?utm_source=openai))
- Don’t assume you're safe: Some returns—like gift tax or special transactions—are excluded. Also, penalties not explicitly covered by AEP (or related federal requirements) still apply.
## Example Scenario
> **Sarah, a small business owner**: Sarah has filed all her annual returns on time for tax years 2022, 2023, and 2024, and paid all estimated tax and employment tax/deposits for quarterly filings over that period. For her 2025 tax return due in April 2026, she forgets to pay **some** estimated taxes. Under AEP, if her 2025 annual return is submitted properly but that payment issue qualifies as a “failure to pay” penalty, that penalty might not be assessed—provided all other eligibility criteria are met.
**Bottom line:** AEP rewards a strong compliance track record with **automatic penalty relief**, reduces paperwork, and removes some uncertainty—if you’ve earned it with timely filings and payments. If you don’t qualify, you may still request relief under FTA during the transition period, or for reasonable cause.