On July 8, 2026, the IRS announced that it was implementing a new automatic process to provide penalty relief for taxpayers with a history of filing and paying on time. Called the Automatic Exemption from Penalty (AEP), this process replaces the “First Time Abate” administrative relief previously available. IRS CEO Frank Bisignano said of the program, “By automatically applying penalty relief, the IRS recognizes that taxpayers who historically pay on time should not have to make a formal request for relief that is routinely granted.”
On its new Administrative Penalty Relief page, IRS details the program.
AEP Qualification
Under the AEP, taxpayers won’t be assessed penalties for filing their return late or paying their tax late or failing to make correct deposits in the current year if they:
- They have a history of timely filed returns.
- The same original return type was timely filed for the prior three years (or 12 consecutive quarters), and
- Either no penalty (except the estimated tax penalty) was assessed or a penalty was assessed, but later abated for reasonable cause or IRS error, and
- These additional requirements are met for business returns:
- The IRS did not waive the failure to deposit penalty four or more times during the prior three years (or 12 consecutive quarters), and
- The failure to deposit penalty was not charged for Electronic Federal Tax Payment System (EFTPS) avoidance.
- The taxpayer is not ineligible for relief. The following taxpayers are ineligible for AEP:
- Their returns were only filed once or infrequently or
- Their returns were subject to the Daily Delinquency Penalty or
- The information reporting their dependent is on another filing
AEP Applicability
The AEP applies to:
- Forms 1040, 1065, 1120
- Forms 940, 941, 943, 944, 945
- Form CT-1
Timing of Implementation
AEP relief begins with this tax year and quarterly returns for:
- 2025 tax year returns, and subsequent
- 2026 quarterly returns, and subsequent
Process of Receiving AEP Relief
AEP relief is automatic. Taxpayers receiving AEP relief will receive a letter explaining that even though they filed late, paid the tax late, or didn’t make the deposit in a timely manner, the applicable penalties were not assessed because of the taxpayer’s history of timely compliance.
Note: During the transition to AEP, The IRS has stated that some qualifying taxpayers may still receive penalty notices for tax year 2025 and 2026 quarterly returns. Taxpayers who believe they qualify may still contact the IRS to request First Time Abate during this period. AEP will fully replace First Time Abate for eligible returns with original due dates on or after Jan. 1, 2027.
Alternative Relief
Taxpayers who do not qualify for the AEP relief, are still eligible to request penalty relief based upon reasonable cause.
IRS Summary Table
The IRS has provided the following table to summarize the differences between AEP and First Time Abate:
| Feature | First Time Abate (FTA) | Automatic Exemption from Penalty (AEP) |
|---|---|---|
| Applicable timeframe | Applies to eligible 2025 tax year and 2026 quarterly returns (not considered for AEP), plus all prior years/periods | Applies to 2025 tax year and 2026 quarterly returns, and all future tax years/quarters |
| How relief is granted | Not automatic | Automatic |
| Action required by taxpayer | Taxpayers must contact the IRS to request relief | No taxpayer action required |
| Penalty assessment | Penalty is assessed first, then later removed | No penalty assessment is made |
| Failure to Pay penalty | May continue to accrue until the tax is fully paid | Does not accrue and is not assessed on unpaid tax |