The Internal Revenue Service announced on July 8, 2026, a new automatic process for providing penalty relief to taxpayers with a history of filing returns and paying on time. The Automatic Exemption from Penalty, or AEP, is intended to reduce the need for eligible taxpayers to formally request assistance and to simplify the administration of penalty relief.

“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.”

How the automatic process works

AEP is a systemic administrative relief program expected to begin in summer 2026. It applies to eligible original returns beginning with tax year 2025 and to 2026 quarterly returns, as well as future tax periods. Taxpayers qualify if they have a history of timely filing and paying any tax due during the three prior years. For quarterly returns, the requirement is 12 consecutive quarters.

  • Failure to file
  • Failure to pay
  • Failure to deposit

When taxpayers qualify, the IRS will not assess these penalties during processing. Taxpayers do not need to take action to receive the relief. The IRS will apply AEP when eligibility requirements are met and issue a notice confirming that the relief was granted.

Not all returns are eligible. Information returns and returns filed only in response to specific transactions or infrequent events generally are not eligible, including Form 706, U.S. Estate Tax Return, and Form 709, Gift Tax Return.

Transition from First Time Abate

First Time Abate has been the most common form of administrative penalty relief. It has allowed eligible taxpayers with a history of timely compliance to request removal of certain penalties. The IRS will begin phasing out First Time Abate and transitioning to AEP during summer 2026.

During the transition, some qualifying taxpayers may still receive penalty notices for eligible tax year 2025 and 2026 quarterly returns. Taxpayers who believe they qualify may contact the IRS to request First Time Abate. AEP will replace First Time Abate for eligible returns with original due dates on or after Jan. 1, 2027.