The Internal Revenue Service announced a new automatic penalty relief program on July 8, 2026, that will eliminate the need for compliant taxpayers to request relief from certain tax penalties. The program, called Automatic Exemption from Penalty (AEP), represents a significant shift in how the IRS administers tax penalties and will help hundreds of thousands of taxpayers avoid penalties they previously had to request to have waived.
The AEP program begins this summer and applies to eligible original returns starting with tax year 2025 and 2026 quarterly returns. Taxpayers qualify if they have timely filed their returns and paid any tax due for the prior three years, or for 12 consecutive quarters in the case of quarterly filers. When eligible, the IRS will automatically prevent penalties for failure to file, failure to pay, and failure to deposit from being assessed during return processing. Taxpayers do not need to take any action to receive this relief.
According to the National Taxpayer Advocate, the change will have a dramatic impact. The Advocate estimates that if AEP had been in place during fiscal year 2025, over 1.5 million taxpayers would have received relief, compared to nearly 220,000 taxpayers who received relief through the manual First Time Abate process that year—roughly seven times as many.
Replacing First Time Abate with Automatic Relief
The AEP program replaces First Time Abate (FTA), the long-standing administrative relief program that required eligible taxpayers to request penalty relief. Under FTA, taxpayers with three years of clean compliance history could request removal of certain penalties, but many eligible taxpayers missed out on relief because they did not know it was available, could not reach the IRS, or lacked professional representation.
The IRS will begin phasing out FTA during summer 2026 and transition to AEP. For eligible returns with original due dates on or after January 1, 2027, AEP will fully replace FTA. During the transition period, some taxpayers who receive penalty notices for eligible 2025 and 2026 returns may still need to contact the IRS to request FTA if they do not receive a separate notice confirming that AEP was applied.
IRS Chief Executive Officer Frank J. Bisignano stated that the change reflects a commitment to simplifying tax administration. “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,” Bisignano said in the announcement.
The National Taxpayer Advocate emphasized that the shift addresses a longstanding equity problem. For years, penalty relief depended on whether a taxpayer knew what to ask for, had access to professional help, or could reach the IRS by phone. Under AEP, eligible taxpayers receive relief automatically, which is especially significant for low-income taxpayers and those who cannot afford representation.
Taxpayers who do not qualify for AEP may still request penalty relief based on reasonable cause, and the IRS will review those requests separately. However, taxpayers must still pay any tax and interest due, as well as any penalties not eligible for relief. Not all returns are eligible for AEP; for example, returns filed only for specific transactions or infrequent events, such as estate tax or gift tax returns, generally do not qualify.
Sources
- IRS — Official announcement (IR-2026-83) introducing the Automatic Exemption from Penalty program and its scope, eligibility requirements, and timeline
- Taxpayer Advocate Service — Analysis of AEP implementation, estimated impact (1.5 million vs. 220,000 taxpayers), and explanation of benefits for taxpayers
- Journal of Accountancy — Reporting on AEP eligibility, application to 2025 and 2026 returns, and replacement of FTA for returns with due dates on or after January 1, 2027
- Bloomberg Tax — Confirmation of automatic relief process and transition details from FTA to AEP
