The Internal Revenue Service announced on July 8, 2026 a new automatic penalty relief program that will waive certain tax penalties for compliant taxpayers without requiring them to request assistance. The program, called Automatic Exemption from Penalty (AEP), begins this summer and replaces the long-standing First Time Abate system, fundamentally changing how the IRS administers penalty relief.
Under AEP, eligible taxpayers—those with a history of timely filing returns and paying tax due in the three prior years—will have penalties automatically suppressed during return processing. The IRS will identify qualifying taxpayers and issue relief without any action on their part, eliminating the burden of filing a separate abatement request.
The penalties eligible for automatic relief include failure-to-file, failure-to-pay, and failure-to-deposit penalties. Individual taxpayers receive relief from failure-to-file and failure-to-pay penalties, while business taxpayers also gain relief from failure-to-deposit penalties. Taxpayers will receive a notice confirming the relief was granted, but they do not need to respond or take further action.
The shift represents a major expansion in reach. In fiscal year 2025, approximately 220,000 taxpayers received relief through the manual First Time Abate process, according to the Taxpayer Advocate Service. If AEP had been in place during that same period, the Taxpayer Advocate Service estimates over 1.5 million taxpayers would have received penalty relief—about seven times as many.
The National Taxpayer Advocate, the IRS’s independent taxpayer watchdog, called the change “a long-awaited taxpayer win.” The Advocate emphasized that the automatic approach addresses a critical gap: many eligible taxpayers missed out on relief simply because they didn’t know it was available, couldn’t reach the IRS, or lacked professional representation. “A penalty that may seem modest to some taxpayers can be financially significant for a taxpayer struggling to pay rent, utilities, groceries, transportation, or medical expenses,” the Advocate wrote.
The IRS is phasing in AEP during summer 2026 for penalties associated with 2025 tax year returns and 2026 quarterly returns. Beginning January 1, 2027, AEP will replace First Time Abate for all eligible original returns. During the transition, some taxpayers may still receive penalty notices for eligible 2025 returns; those who believe they qualify can contact the IRS to request First Time Abate relief.
Not all returns qualify for AEP. Information returns and returns filed only for specific transactions or infrequent events—such as estate tax returns (Form 706) or gift tax returns (Form 709)—generally are not eligible. Additionally, AEP does not eliminate a taxpayer’s obligation to pay any tax and interest due, nor does it relieve penalties that do not qualify for automatic relief.
Taxpayers who do not qualify for AEP may still request penalty relief based on reasonable cause—when they exercised ordinary care but were unable to comply due to circumstances beyond their control. The IRS will review those requests separately and notify taxpayers of the outcome.
Sources
- Internal Revenue Service — official announcement of Automatic Exemption from Penalty program, eligibility criteria, and rollout timeline
- Taxpayer Advocate Service — analysis of AEP impact, historical FTA data (220,000 taxpayers in FY 2025), projected reach of 1.5 million taxpayers, and commentary on benefits for low-income taxpayers
- Yahoo Finance — confirmation of 1.5 million taxpayer estimate and seven-fold increase over prior manual system
