The Internal Revenue Service introduced an automatic penalty relief program on July 8, 2026, designed to simplify tax compliance for eligible taxpayers with a strong filing history. The new Automatic Exemption from Penalty, or AEP, replaces the long-standing First Time Abate system and removes the need for taxpayers to request relief they routinely qualify for.
Under AEP, taxpayers who have timely filed returns and paid any tax due for the prior three years (or 12 consecutive quarters for quarterly returns) automatically qualify for relief from failure-to-file, failure-to-pay, and failure-to-deposit penalties. The IRS will apply the relief during return processing without requiring any action from the taxpayer.
“Automatic Exemption from Penalty reflects the IRS’ commitment to making the payment of taxes owed simpler and more consistent,” said IRS Chief Executive Officer Frank J. Bisignano. “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 program is expected to begin this summer for tax year 2025 and 2026 quarterly returns. Starting January 1, 2027, AEP will replace First Time Abate for all eligible original returns. Taxpayers who qualify will receive a notice confirming that the relief was granted; they do not need to respond or contact the IRS.
Impact and Scope of the New Program
The shift to automatic relief is expected to reach far more taxpayers than the previous manual system. The Taxpayer Advocate Service estimates that if AEP had been in place during fiscal year 2025, over 1.5 million taxpayers would have received penalty relief, compared to the roughly 220,000 who received relief through the manual First Time Abate process that year.
According to the National Taxpayer Advocate, the change addresses a longstanding problem: many eligible taxpayers missed out on relief simply because they did not know it was available, could not reach the IRS, or lacked professional representation. The automatic approach is especially significant for low-income taxpayers and those unable to afford tax professional assistance.
Not all returns qualify for AEP. Information returns and returns filed only for specific transactions or infrequent events, such as Form 706 (Estate Tax Return) and Form 709 (Gift Tax Return), generally are not eligible. Taxpayers must still pay any tax and interest due, as well as any penalties not eligible for relief.
The IRS will continue to offer penalty relief based on reasonable cause for taxpayers who do not qualify for AEP. Taxpayers who receive a penalty notice and believe they qualify for relief can contact the IRS to request consideration under AEP, First Time Abate, or reasonable cause provisions.
Sources
- Internal Revenue Service — announced the Automatic Exemption from Penalty program on July 8, 2026 (IR-2026-83), including eligibility criteria, penalties covered, and implementation timeline
- Taxpayer Advocate Service — provided analysis of the AEP program’s impact, comparing projected relief to 1.5 million taxpayers versus 220,000 under the prior manual system, and explained the significance for low-income and underrepresented taxpayers
