The IRS introduced an automatic penalty relief program this summer that will waive certain tax penalties for millions of eligible taxpayers without requiring them to request assistance, marking a major shift away from a decades-old manual process.
The new Automatic Exemption from Penalty, or AEP, was announced on July 8, 2026, and is expected to begin processing this summer. According to the IRS, the program will automatically apply penalty relief during return processing to eligible original returns beginning with tax year 2025 and 2026 quarterly returns, as well as future tax periods.
To qualify for AEP, taxpayers must have timely filed returns and paid any tax due in the three prior years, or 12 consecutive quarters for quarterly returns. When eligible taxpayers file or pay late, the IRS will suppress the assessment of failure-to-file, failure-to-pay, and failure-to-deposit penalties without any action required from the taxpayer.
“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,” said IRS Chief Executive Officer Frank J. Bisignano in a statement.
Replacing First Time Abate with Automatic Relief
AEP replaces the First Time Abate program, which has been the most common form of administrative penalty relief since its inception. Under FTA, eligible taxpayers had to contact the IRS to request relief—a process that created barriers for many who didn’t know the relief existed, couldn’t reach the IRS by phone, or lacked professional tax help.
In fiscal year 2025, approximately 220,000 taxpayers received FTA relief through the manual process. The National Taxpayer Advocate estimates that if AEP had been in place for the same period, over 1.5 million taxpayers would have received penalty relief—about seven times as many. “For years, too many eligible taxpayers missed out on first-time penalty relief simply because they did not know it was available, did not understand how to request it, could not get through to the IRS, or did not have a tax professional advising them,” said Erin Collins, the National Taxpayer Advocate.
The IRS will begin phasing out FTA and transitioning to AEP during the summer of 2026. For eligible returns with original due dates on or after January 1, 2027, AEP will completely replace FTA. The agency emphasized that taxpayers who receive an AEP notice confirming relief was granted do not need to contact the IRS or respond to the notice.
Not all returns qualify for AEP. Information returns and returns filed only in response to specific infrequent transactions—such as Form 706 (Estate Tax Return) or Form 709 (Gift Tax Return)—are generally ineligible. Additionally, AEP does not eliminate the taxpayer’s obligation to pay any tax and interest due, or penalties that don’t qualify for relief.
Taxpayers who don’t qualify for AEP may still request penalty relief based on reasonable cause. The IRS will review those requests and notify taxpayers of the outcome. The National Taxpayer Advocate has recommended that the IRS preserve reasonable cause relief protections to ensure taxpayers receive the most appropriate relief based on their individual circumstances.
Sources
- Internal Revenue Service — Official announcement of the Automatic Exemption from Penalty program (IR-2026-83, July 8, 2026)
- Taxpayer Advocate Service — Analysis of AEP implementation, eligibility requirements, and impact estimates
- USA Today — Reporting on the program’s scope and benefits for millions of eligible taxpayers
