The Internal Revenue Service announced July 8, 2026, that it will begin automatically providing penalty relief to eligible taxpayers this summer, eliminating the need for them to request assistance. The new Automatic Exemption from Penalty, or AEP, replaces the long-standing First Time Abate program and represents a significant shift in how the IRS administers tax penalties.
AEP will apply to eligible original returns beginning with tax year 2025 and 2026 quarterly returns, according to the IRS. Taxpayers qualify if they have a history of timely filing returns and paying any tax due for the prior three years, or 12 consecutive quarters for quarterly filers. When eligible, the IRS will automatically prevent assessment of three types of penalties: failure to file, failure to pay, and failure to deposit.
The program eliminates a major administrative hurdle that plagued the previous system. Under First Time Abate, taxpayers generally had to request relief themselves, meaning relief often depended on whether a taxpayer knew what to ask for, had access to professional help, or could reach the IRS. Many eligible taxpayers likely paid penalties they could have avoided.
The scale of the change is substantial. In fiscal year 2025, nearly 220,000 taxpayers received First Time Abate relief through the manual process, according to the National Taxpayer Advocate Service. However, the Taxpayer Advocate estimates that if AEP had been in place for the same period, over 1.5 million taxpayers would have received relief automatically—about seven times as many.
National Taxpayer Advocate Toshia Hansen called the shift “a long-awaited taxpayer win,” noting that it will help hundreds of thousands of taxpayers and reduce unnecessary burden. “Relief should not depend on a taxpayer’s income, ability to reach the IRS by phone, or access to professional representation,” Hansen stated in a blog post on the Taxpayer Advocate Service website.
Taxpayers who receive AEP relief will not need to take action or respond to a notice. The IRS will issue a notice confirming that relief was granted. However, not all returns qualify; information returns and returns filed only for certain transactions or infrequent events, such as estate or gift tax returns, generally are not eligible for AEP.
The IRS will phase out First Time Abate during the summer of 2026. During the transition, some qualifying taxpayers may still receive penalty notices for eligible 2025 tax year or 2026 quarterly returns. Those taxpayers can contact the IRS to request First Time Abate if they believe they qualify. Starting January 1, 2027, AEP will fully replace First Time Abate for eligible returns with original due dates on or after that date.
Taxpayers who do not qualify for AEP may still request penalty relief based on reasonable cause, according to the IRS. Those requests will be reviewed individually, and taxpayers will be notified of the outcome. While AEP prevents assessment of certain penalties, taxpayers must still pay any tax and interest due, as well as any penalties not eligible for relief.
Sources
- Internal Revenue Service — Official announcement of the Automatic Exemption from Penalty program, issued July 8, 2026
- Taxpayer Advocate Service — Blog post analyzing AEP implementation, historical data on First Time Abate usage, and taxpayer impact estimates
