What is the Automatic Exemption from Penalty (AEP)?
Starting summer 2026, the IRS will begin implementing a new program called the Automatic Exemption from Penalty (AEP). Under AEP, taxpayers who have historically filed and paid on time will automatically receive relief from certain penalties without needing to request it. This phase‐in replaces the First Time Abate (FTA) relief for eligible returns. (irs.gov)
Who qualifies for the relief?
To be eligible for AEP, taxpayers must meet all of the following criteria:
- A history of filing and paying on time during the previous three years, or 12 consecutive quarters for those who file quarterly returns. (irs.gov)
- Submitting original returns for tax year 2025 or quarterly returns in 2026, and returns with original due dates on or after January 1, 2027 for subsequent returns. (irs.gov)
- Note: Some return types are not eligible, such as information returns or returns filed due to infrequent events (for example, Estate Tax Returns (Form 706) and Gift Tax Returns (Form 709)). (irs.gov)
What penalties are covered and what are not?
Penalties that can be relieved automatically under AEP for eligible returns include:
- Failure to file
- Failure to pay
- Failure to deposit (irs.gov)
However, penalties that are not covered include:
- Penalties on returns that are not eligible, like the ones listed above.
- Penalties imposed on amended, duplicate, or information-only returns.
- Penalties unrelated to filing, payment, or deposit failures.
Transition timelines: FTA to AEP
| Period | Program in effect | Comments |
|---|---|---|
| Tax year 2025 & 2026 quarterly returns | AEP begins phase-in | Some eligible returns may still receive FTA notices; taxpayers can still request FTA where applicable. (irs.gov) |
| Returns with original due dates on or after Jan 1, 2027 | AEP fully replaces FTA | FTA will no longer be available for most original returns. (irs.gov) |
What taxpayers should do now
- Check your compliance history. Do you file and pay on time over the last three years (or 12 quarters)? If yes, you may automatically qualify.
- Review any penalty notices you’ve received. If you think you should qualify for AEP but didn’t get a notice, you might still qualify under FTA for prior returns.
- Keep accurate records of timely filing and payments. Having proof matters in case there’s any discrepancy.
- Stay tuned for IRS notices. If AEP applies, the IRS will send a confirmation notice—no action needed from taxpayers to receive it.
Example scenarios
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Individual taxpayer: Jane, who filed and paid on time for 2022, 2023, and 2024, files her 2025 return by the deadline. Under AEP, she should receive relief from a late‐file penalty without having to apply through FTA.
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Business with quarterly filings: ABC Co. filed and paid tax due for all quarters in 2024 and the first two quarters of 2025 on time. Their 2026 Q3 return is filed late. If it meets all eligibility, AEP may relieve penalties automatically.
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Ineligible return: Sam submits a Gift Tax Return (Form 709) or an Estate Tax Return (Form 706). Even if he has great compliance history, those returns generally do not qualify under AEP.
Bottom line
The IRS’s shift to the Automatic Exemption from Penalty is a win for taxpayers who maintain good compliance. It cuts red tape, reduces the chances of receiving penalties merely due to oversight, and rewards consistent responsibility. If you believe you qualify, keep an eye out for IRS notices, maintain strong compliance, and know the difference between AEP and the outgoing First Time Abate program.