IRS Introduces Automatic Penalty Relief for Eligible Taxpayers
Published on by Kate Burkhart, Lauren Huster, in Tax Services
- The IRS’s new Automatic Exemption from Penalty (AEP) program provides automatic penalty relief for eligible taxpayers by preventing certain penalties from being assessed instead of requiring taxpayers to request relief afterward.
- Eligibility requires a strong history of timely filing and payment over the previous three tax years or 12 consecutive quarters for quarterly filers.
- AEP replaces most First Time Abate (FTA) requests by automatically preventing eligible Failure-to-File, Failure-to-Pay, and Failure-to-Deposit penalties.
- Not all returns and penalties qualify for AEP because certain return types, taxes, interest, and penalties remain excluded.
- Existing penalty relief options remain available during implementation because taxpayers may still qualify for First Time Abate or reasonable cause relief until AEP fully replaces FTA on January 1, 2027.
On July 8th, 2026, the IRS introduced the new Automatic Exemption from Penalty (AEP) program. AEP automatically prevents certain penalties from being assessed for eligible taxpayers, eliminating the need to request relief after penalties have already been applied.
The IRS plans to begin implementing AEP during the summer of 2026. Eligible taxpayers will receive notice if automatic penalty relief has been granted.
Who qualifies?
Generally, taxpayers qualify for AEP if they’ve demonstrated a history of timely filing and payment. This includes taxpayers who have:
- Filed required returns on time for the previous 3 tax years, or the previous 12 consecutive quarters for quarterly filers
- Paid their tax liabilities on time during that same period
How AEP differs from First Time Abate
AEP is expected to replace the IRS’s First Time Abate (FTA) administrative relief process.
Under FTA, eligible taxpayers could request that certain penalties be removed after they had already been assessed. With AEP, qualifying penalties are prevented from being assessed in the first place, so eligible taxpayers generally won’t need to submit a separate request for relief.
Which returns are eligible?
The IRS will begin applying AEP to:
- Original 2025 tax returns
- Original 2026 quarterly returns
- Returns filed for future tax periods
The following returns aren’t eligible for AEP:
- Information returns
- Estate tax returns (Form 706)
- Gift tax returns (Form 709)
- Certain returns filed for specific transactions
Which penalties are covered?
AEP applies to the following penalties:
- Failure-to-File penalties
- Failure-to-Pay penalties
- Failure-to-Deposit penalties
The program doesn’t apply to tax liabilities, applicable interest, or penalties that aren’t eligible under the program. Taxpayers remain responsible for paying any taxes and interest owed.
Taxpayers who don’t qualify for AEP, or who receive penalties not covered by the program, may still be eligible to request penalty relief based on reasonable cause under the IRS’s existing procedures.
What to know during implementation
The IRS expects AEP to fully replace the FTA process for applicable returns dated on or after January 1, 2027.
During the implementation period, some taxpayers may still receive penalties that would otherwise qualify for AEP. If you receive an IRS penalty notice, review it carefully. Depending on your circumstances, you may still be able to request relief through the existing FTA or reasonable cause procedures until AEP is fully implemented.
Next steps
If you’ve received an IRS penalty notice or have questions about whether you may qualify for Automatic Exemption from Penalty, our team of top tax pros can help you understand the available relief options and determine the most appropriate next steps for your situation. Contact us today for a free consultation. As always, we’re here to help.
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