Compliance
Planning Ahead with the IRS’s New Automatic Exemption from Penalty
The IRS is replacing First Time Abate with an automatic process that provides penalty relief for eligible taxpayers — here’s how it works, who qualifies, and how to take advantage.
By NomadicTax Research Team • 5-8 min read • August 7, 2026
## What’s Changing: From First Time Abate to Automatic Exemption from Penalty (AEP)
- The IRS has introduced **Automatic Exemption from Penalty (AEP)**, a process starting summer 2026 that automatically grants penalty relief to eligible taxpayers without the need to request it. ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
- This new policy replaces the **First Time Abate (FTA)** program, which required taxpayers to contact the IRS to have penalties removed. ([irs.gov](https://www.irs.gov/payments/administrative-penalty-relief?campaign=home&redirect_count=1&redirect_id=e5a24f9b-8f01-4e82-b50c-a7f2c95d5a4a&utm_source=openai))
## Who Qualifies for AEP
To be eligible, you must have a clean recent compliance record:
- Timely filed the same return type (1040, 1120, etc.) for the **previous three years** (or 12 quarterly returns for quarterly filers). ([irs.gov](https://www.irs.gov/payments/administrative-penalty-relief?campaign=home&redirect_count=1&redirect_id=e5a24f9b-8f01-4e82-b50c-a7f2c95d5a4a&utm_source=openai))
- Have paid taxes due for those years; or, if a penalty was assessed, it was later abated due to reasonable cause or IRS error. ([irs.gov](https://www.irs.gov/payments/administrative-penalty-relief?campaign=home&redirect_count=1&redirect_id=e5a24f9b-8f01-4e82-b50c-a7f2c95d5a4a&utm_source=openai))
- For business taxpayers, additional restrictions apply: limited failure to deposit penalties, and no avoidance of using the Electronic Federal Tax Payment System (EFTPS). ([irs.gov](https://www.irs.gov/payments/administrative-penalty-relief?campaign=home&redirect_count=1&redirect_id=e5a24f9b-8f01-4e82-b50c-a7f2c95d5a4a&utm_source=openai))
Some return types are NOT eligible, including information returns, estate and gift tax returns (e.g. Forms 709, 706), or other event-based filings. ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
## Effective Dates & Scope
- AEP begins **summer 2026**; it applies to **original returns** for tax year 2025, all **quarterly returns for 2026**, and future tax periods. ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
- First Time Abate will be phased out during this transition; some taxpayers may still see FTA apply for returns with due dates in that overlap period. ([irs.gov](https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers?utm_source=openai))
## What It Really Means for You
| Situation | Under FTA | Under AEP |
|---|---|---|
| Eligible taxpayer forgot to file one Form 1040 timely | Must request abatement | No action needed; IRS will apply automatically |
| Business missed a quarterly payment deposit | May qualify if historically compliant | Same relief if criteria met |
| Estate filed a gift return late | Not eligible | Still not eligible |
## Actions You Should Take Now
- Review your filing and payment history for the past three years. If you’ve consistently filed and paid on time, you’re likely a good candidate.
- When filing your 2025 return, check that all required returns are submitted—even if late. Penalties **won’t** be assessed if IR records show eligibility.
- Keep documentation in case IRS challenges your compliance history. Though AEP is automatic, recordkeeping matters.
- Tax professionals: update your advice to clients, especially those who have previously relied on requesting First Time Abate.
## Key Takeaways
- The Automatic Exemption from Penalty will reduce hurdles and make relief more equitable.
- If you’ve been compliant, this might mean **no penalties even if you file or pay late**, starting summer 2026.
- But this doesn’t waive taxes due or interest — those still apply.
This change represents **Tax Planning**, helping individuals and businesses strategize to benefit from this new IRS policy. Use it now—and make sure you’re eligible before relying on it.