IRS simplifies penalty relief with a new automatic process

What’s changing?

The IRS is introducing Automatic Exemption from Penalty (AEP) — a new process that can remove certain penalties without you having to ask. It replaces the older First Time Abate program for many returns and is meant to cut red tape for people who usually file and pay on time.

When does it start?

AEP is expected to begin in summer 2026. It applies to:

• Eligible original returns starting with tax year 2025
• 2026 quarterly returns
• Future tax periods that meet the rules

For eligible returns with original due dates on or after January 1, 2027, AEP fully replaces First Time Abate.

Who qualifies?

You generally qualify if you have a history of timely filing and paying for:

• The three prior years (annual returns), or
• 12 consecutive quarters (quarterly returns)

If you qualify, the IRS can skip assessing these penalties during processing:

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

You do not need to apply. If you’re eligible, the IRS applies AEP and sends a notice confirming the relief.

Who is not covered?

Not every return qualifies. Examples that generally do not get AEP include:

• Information returns
• Returns tied to one-time or rare events, such as Form 706 (estate tax) or Form 709 (gift tax)

What about First Time Abate?

First Time Abate has been the most common way to request removal of certain penalties after a clean compliance history. The IRS will phase it out during summer 2026 as AEP rolls in.

During the transition, some qualifying taxpayers may still get penalty notices for tax year 2025 or 2026 quarterly returns. If you think you qualify, you can still contact the IRS and request First Time Abate while the switch is underway.

More details: Administrative penalty relief.

What if you don’t qualify for AEP?

You may still ask for penalty relief based on reasonable cause. The IRS reviews those requests and notifies you of the result. See Penalty relief for reasonable cause.

Important: tax and interest still apply

AEP can stop certain penalties from being assessed, but it does not erase:

• Tax you still owe
• Interest on unpaid tax
• Penalties that are not eligible for this relief

Bottom line

If you have a strong track record of filing and paying on time, the IRS may soon waive some common penalties automatically — no phone call or form required. Stay current on payments, watch for IRS notices, and check IRS.gov for eligibility details. When you’re unsure, talk with a qualified tax professional.