Compliance
New IRS Penalty Relief: How Automatic Exemption from Penalty Changes Compliance
Starting summer 2026, taxpayers with clean histories get penalty relief automatically—no need to apply. Here’s who qualifies and what risks to watch out for.
By NomadicTax Research Team • 5-8 min read • August 26, 2026
## What Is the Automatic Exemption from Penalty (AEP)?
Beginning summer 2026, the IRS is rolling out a new relief measure called the **Automatic Exemption from Penalty** (AEP). Under it, eligible taxpayers no longer need to request relief through First Time Abate for penalties related to:
- Failure to file;
- Failure to pay;
- Failure to deposit required taxes. ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
If you've consistently filed and paid on time for the past three years (or 12 straight quarters for quarterly filings), the IRS will apply AEP **automatically** to your original 2025–2026 filings and future periods if you qualify. ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
## Who Qualifies and Who Doesn’t
### **Qualifiers**:
- Must have a history of filing returns **on time** and paying taxes on time for the last three years or last 12 quarters if quarterly.
- Applies to **original** returns, not amended ones. ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
### **Non-Qualifiers**:
- Taxpayers with recent late or amended filings, or payments, may not qualify.
- Information returns, estate/gift tax returns, or other returns that result from one-off transactions are generally *not eligible*. ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
## How This Impacts Compliance Strategy
- **No need to request relief**—if you’re eligible, penalties won’t be assessed in the first place. That reduces audit risks and administrative work.
- **Remain consistent**—one late filing or missed payment could disqualify you. Keep up your deadlines.
- **Review your tax history**—if you’re unsure whether you qualify, check prior years. Fixing delinquencies might help eligibility.
## Examples to Illustrate
| Scenario | Does AEP Apply? |
|----------|------------------|
| A small business owner consistently files returns and pays taxes on time through 2023–2025, with quarterly payments current. | ✅ Likely qualifies; penalties for missing deposits in 2026 would be automatically exempted. |
| Taxpayer filed late in 2023, paid penalties. In 2025 and 2026 still late with one payment. | ❌ Likely disqualified due to prior non-compliance. |
| Estate filing that arises from inheritance, or large gift tax return. | ❌ Generally excluded from AEP. |
## Action Steps You Should Take Now
- **Gather your three-year history** of returns and payments—it’s your eligibility credential store.
- **Stay on top of upcoming due dates**, especially for quarterly or estimated tax payments, to maintain eligibility.
- **Document everything**—if you qualify and you’re audited, you’ll want proof of clean compliance.
- **Calibrate your systems and calendar**, or work with a tax preparer who’ll monitor it.
## Final Thoughts
Automatic relief under AEP simplifies compliance for reliable taxpayers. It minimizes paperwork and reduces uncertainty—if you’ve got a clean history, you stand to gain. If you’ve had hiccups before, now's the time to clean them up. The IRS’s threshold isn't arbitrary—it’s designed to reward a reliable track record. Don’t let pending obligations or errors trip you up.