The Internal Revenue Service announced a new automatic penalty relief program on July 8, 2026, designed to simplify tax compliance for millions of Americans with clean filing histories. The program, called Automatic Exemption from Penalty (AEP), will replace the long-standing First Time Abate (FTA) program and eliminate the need for taxpayers to request relief manually.
AEP is expected to begin in the summer of 2026 and will apply to eligible tax year 2025 returns and 2026 quarterly returns. Under the new system, the IRS will automatically identify and suppress penalties for taxpayers who meet strict compliance criteria, according to the IRS newsroom announcement.
To qualify for AEP, taxpayers must have a history of timely filing returns and paying any tax due in the prior three years—or 12 consecutive quarters for quarterly filers. When taxpayers qualify, the IRS will not assess failure-to-file, failure-to-pay, or failure-to-deposit penalties during the return processing stage. Taxpayers do not need to take any action to receive this relief; if eligible, the IRS will apply AEP automatically and issue a notice confirming the relief was granted.
The scope of AEP’s potential impact is substantial. According to the Taxpayer Advocate Service, in fiscal year 2025, nearly 220,000 taxpayers received FTA relief through the manual request process. The Taxpayer Advocate estimates that if AEP had been in place during that same period, over 1.5 million taxpayers would have received penalty relief—approximately seven times as many.
Why This Matters for Tax Compliance
The shift from a manual request system to automatic relief addresses a long-standing problem: many eligible taxpayers missed out on penalty relief simply because they did not know the relief existed, could not reach the IRS, lacked professional representation, or did not understand how to request it. This burden fell especially heavily on low-income taxpayers and those without access to tax professionals, according to the National Taxpayer Advocate.
IRS Chief Executive Officer Frank J. Bisignano said in the announcement that “Automatic Exemption from Penalty reflects the IRS’ commitment to making the payment of taxes owed simpler and more consistent.” He added: “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.”
The National Taxpayer Advocate called AEP “a long-awaited taxpayer win,” noting that the Taxpayer Advocate Service had recommended automatic penalty relief for years. The new system reduces unnecessary phone calls to the IRS, decreases manual penalty abatement cases, and allows IRS employees to focus on issues requiring direct attention.
Implementation and Transition
The IRS will begin phasing out FTA and transitioning to AEP during the summer of 2026. During the transition period, some taxpayers with eligible 2025 tax year returns or 2026 quarterly returns may still receive penalty notices if their returns were processed before AEP became available. Those taxpayers can contact the IRS to request First Time Abate relief if they believe they qualify.
For eligible original returns with due dates on or after January 1, 2027, AEP will fully replace FTA. Not all returns qualify for AEP relief; for example, information returns and returns filed only for specific transactions or infrequent events—such as Form 706 (Estate Tax Return) or Form 709 (Gift Tax Return)—generally are not eligible.
Importantly, AEP prevents the assessment of penalties but does not eliminate a taxpayer’s obligation to pay any tax owed, interest charges, or penalties that do not qualify for relief. Taxpayers who do not qualify for AEP may still request penalty relief based on reasonable cause if they exercised ordinary care and prudence but were unable to comply due to circumstances beyond their control.
Sources
- Internal Revenue Service — Official announcement of the Automatic Exemption from Penalty program on July 8, 2026 (IR-2026-83), including eligibility criteria and implementation timeline.
- Taxpayer Advocate Service — Analysis of AEP’s impact, including the estimate that over 1.5 million taxpayers would have received relief if the program had been in place in fiscal year 2025, compared to 220,000 under the manual FTA process.
- IRS Newsroom — Details on AEP design, the transition from FTA, and how the program applies to different return types and penalty categories.
