The Internal Revenue Service announced a new automatic penalty relief program on July 8, 2026, designed to simplify tax penalties for eligible taxpayers and reduce the burden of requesting relief. The Automatic Exemption from Penalty, or AEP, is expected to begin processing this summer and will replace the long-standing First Time Abatement program.
Eligible taxpayers qualify for AEP if they have filed required returns and paid taxes on time for the prior three years—or 12 consecutive quarters for those filing quarterly returns. When taxpayers meet these criteria, the IRS will automatically prevent failure-to-file, failure-to-pay, and failure-to-deposit penalties from being assessed during return processing. Taxpayers do not need to take any action or submit a request; if eligible, the IRS will apply the relief and send a notice confirming it.
The program applies to eligible original returns beginning with tax year 2025 and 2026 quarterly returns, with broader application expected in 2027 for 2026 returns. Starting January 1, 2027, AEP will fully replace First Time Abatement for returns with original due dates on or after that date. IRS Chief Executive Officer Frank J. Bisignano said the change reflects “the IRS’ commitment to making the payment of taxes owed simpler and more consistent,” noting that “taxpayers who historically pay on time should not have to make a formal request for relief that is routinely granted.”
First Time Abatement, the previous administrative relief program, required eligible taxpayers to actively request penalty forgiveness—a process that many did not navigate successfully. For years, the Taxpayer Advocate Service, an independent office within the IRS, recommended automating this relief. According to the National Taxpayer Advocate’s analysis, in fiscal year 2025, approximately 220,000 taxpayers received FTA relief through the manual process. If AEP had been in place during the same period, the Taxpayer Advocate Service estimates over 1.5 million taxpayers would have received penalty relief automatically—about seven times as many.
The shift to automatic relief addresses a significant gap in access to penalty forgiveness. Many eligible taxpayers missed out on relief under the old system simply because they didn’t know it existed, couldn’t reach the IRS by phone, or couldn’t afford professional tax help. The National Taxpayer Advocate emphasized that penalty relief is especially important for low-income taxpayers and those unable to afford representation, noting that “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.”
Taxpayers should note that not all returns qualify for AEP. Returns filed only for specific transactions or infrequent events—such as Form 706 (estate tax returns) and Form 709 (gift tax returns)—are generally ineligible. Additionally, while AEP prevents certain penalties from being assessed, taxpayers remain responsible for paying any tax and interest due, as well as any penalties that do not qualify for relief.
Taxpayers who do not qualify for AEP may still request penalty relief based on reasonable cause, a separate relief option available when taxpayers exercised ordinary care and prudence but were unable to comply due to circumstances beyond their control. The IRS will review those requests and notify taxpayers of the outcome.
Sources
- Internal Revenue Service (IRS) — Official announcement of the Automatic Exemption from Penalty program, eligibility criteria, and implementation timeline (July 8, 2026)
- Taxpayer Advocate Service — Analysis of AEP’s expected impact, historical FTA relief data, and commentary on taxpayer access and fairness (July 8, 2026)
