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On July 8, 2026, the IRS announced a new program that automatically grants penalty relief to taxpayers who historically file and pay their taxes on time. The program, called Automatic Exemption from Penalty (AEP), will replace First Time Abate (FTA). Taxpayers with a clean recent compliance record already qualified for FTA. The difference now is that the IRS will apply the relief on its own and send a notice confirming it. IRS CEO Frank J. Bisignano said the change “reflects the IRS’ commitment to making the payment of taxes owed simpler and more consistent.”
Who Qualifies for the AEP
The IRS expects to launch AEP in the summer of 2026. It reaches eligible original returns, starting with tax year 2025 returns and 2026 quarterly returns, and extends to future tax periods. Eligibility turns on a taxpayer’s recent track record: a clean pattern of on-time filing and payment over the prior three years, or 12 quarters in a row for those who file quarterly.
For qualifying taxpayers, the IRS will not assess three common penalties during processing:
- Failure to file
- Failure to pay
- Failure to deposit
No request is required. When the criteria are met, the relief is applied automatically and the taxpayer receives a notice documenting it. Because AEP works during processing, it stops these penalties before they are assessed, rather than removing them after the fact the way FTA did. The relief does not erase the underlying bill. Taxpayers still owe any tax and interest due, along with any penalties that fall outside the program.
Certain returns are also excluded. Information returns and returns filed only in response to specific transactions or infrequent events generally do not qualify. The IRS points to the Form 706 estate tax return and the Form 709 gift tax return as examples.
Say Goodbye to the FTA
The IRS will begin phasing out FTA in summer 2026. During that stretch, some qualifying taxpayers may still receive penalty notices for eligible tax year 2025 and 2026 quarterly returns even though they meet the AEP criteria.
If that happens, the older path stays open. Taxpayers who believe they qualify can contact the IRS to request First Time Abate. AEP takes over fully for eligible returns with original due dates on or after January 1, 2027. Until then, it is worth reviewing client notices carefully rather than assuming automatic relief has already been applied.
If a Client Does Not Qualify
Taxpayers who fall outside AEP still have options. They can request penalty relief based on reasonable cause, and the IRS will review each request and report the outcome. That route continues to depend on facts and documentation, so the usual standards for building a reasonable-cause argument apply.
In Summary
The IRS is implementing the AEP as a fairness measure. Taxpayers with a history of filing and paying their taxes on time will be eligible without requiring a formal request. The IRS states that they can apply relief more evenly with this new system and encourage voluntary compliance. A tool that once required a phone call or a letter will increasingly resolve itself, but only for the specific penalties and returns the program covers, and only once the transition is complete.
You can read more about the the IRS’s Automatic Exemption for Penalty (AEP) here:
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