The IRS introduced the Automatic Exemption from Penalty on July 8, 2026, a new system that will eliminate the need for eligible taxpayers to request tax penalty relief. The program, known as AEP, represents a significant shift in how the agency administers penalty relief for taxpayers with a strong compliance history.
AEP replaces the long-standing First Time Abate program, which required taxpayers to manually request relief. Under the new system, the IRS will automatically prevent certain penalties from being assessed during original return processing when taxpayers meet eligibility requirements. Eligible taxpayers must have filed required returns on time and paid any tax due for the prior three years—or 12 consecutive quarters for quarterly filers.
When AEP applies, the IRS will suppress failure-to-file, failure-to-pay, and failure-to-deposit penalties. Taxpayers will receive a notice confirming that the relief was granted, but they won’t need to take any action to receive it. The program begins in summer 2026 and applies to tax year 2025 returns and 2026 quarterly returns, with broader application expected in 2027.
The scale of the change is substantial. In fiscal year 2025, nearly 220,000 taxpayers received First Time Abate relief through the manual process. The Taxpayer Advocate Service estimates that if AEP had been in place for the same period, over 1.5 million taxpayers would have received penalty relief—about seven times as many. A 2012 report highlighted the access problem: only 8 percent of the 1.65 million individual taxpayers who qualified for First Time Abate actually requested it.
IRS Chief Executive Officer Frank J. Bisignano stated that the change reflects the agency’s “commitment to making the payment of taxes owed simpler and more consistent.” The National Taxpayer Advocate called the implementation “a long-awaited taxpayer win,” noting that the automatic approach reaches taxpayers who may not know relief exists, cannot afford professional representation, or struggle to reach the IRS by phone.
The program does not eliminate all penalties. Taxpayers must still pay any tax and interest due, as well as penalties not eligible for relief, such as accuracy-related penalties or information return penalties. Returns filed only for specific transactions or infrequent events—such as estate tax returns or gift tax returns—generally do not qualify for AEP. Taxpayers who do not qualify for AEP may still request relief based on reasonable cause if circumstances warrant it.
During the transition period, some taxpayers with eligible 2025 tax year returns may still receive penalty notices if their returns were processed before AEP became available. The IRS advises that taxpayers who believe they qualify can contact the agency to request First Time Abate or explore other relief options. The agency will continue phasing out First Time Abate and transitioning to AEP through 2027, at which point AEP will replace it for all eligible original returns with due dates on or after January 1, 2027.
Sources
- Internal Revenue Service (IRS) — Official announcement of Automatic Exemption from Penalty program (IR-2026-83, July 8, 2026)
- IRS Newsroom — Fact sheet on how AEP works and taxpayer eligibility requirements (FS-2026-12, July 2026)
- Taxpayer Advocate Service — Analysis of AEP implementation, historical FTA data (220,000 taxpayers in FY 2025), and estimate that AEP would reach 1.5 million taxpayers if applied retroactively
- H&R Block — Historical data on First Time Abate utilization (2012 report showing 8% of 1.65 million eligible taxpayers requested relief)
