The IRS is making it easier for compliant taxpayers to avoid certain penalties. Beginning in summer 2026, the agency is automatically applying penalty relief through a new program called the Automatic Exemption from Penalty (AEP). For eligible returns, this change eliminates the need to request the relief that taxpayers previously had to seek under the First Time Abate process.
For tax professionals and businesses that maintain strong filing and payment records, this update reduces administrative work while promoting consistency in how the IRS administers penalties.
Received an IRS penalty notice? Learn how Mraz Tax Solutions can help with IRS notice review and penalty relief.
What Is the Automatic Exemption from Penalty (AEP)?
AEP is an administrative relief program that prevents certain penalties from being assessed when a taxpayer meets the IRS’s compliance criteria. Unlike First Time Abate, which generally required the taxpayer to contact the IRS, AEP is applied when an eligible original return finishes processing.
When AEP applies, the IRS will:
- Not assess eligible failure-to-file, failure-to-pay, and failure-to-deposit penalties.
- Send a notice explaining that the relief was granted.
- Require no response or other action from the taxpayer regarding the relief notice.
Taxpayers remain responsible for unpaid tax, interest, and any penalties that are not eligible for AEP.
Who Qualifies for Automatic IRS Penalty Relief?
To qualify, a taxpayer generally must have timely filed the same return type and paid the tax due for the three prior years, or the prior 12 consecutive quarters for quarterly filers. The current filing must also be an eligible original return.
Eligibility Requirements
| Requirement | Annual Filers | Quarterly Filers |
|---|---|---|
| Compliance period | Prior 3 years | Prior 12 consecutive quarters |
| Filing history | Same return type filed on time | Same return type filed on time |
| Penalty history | No penalty other than an estimated tax penalty, unless the penalty was later removed for reasonable cause or IRS error | No penalty other than an estimated tax penalty, unless the penalty was later removed for reasonable cause or IRS error |
| First eligible period | 2025 tax year returns | 2026 quarterly returns |
The IRS currently lists these return series as eligible for AEP consideration:
- Forms 1040, 1065, and 1120.
- Forms 940, 941, 943, 944, and 945.
- Form CT-1.
Business taxpayers must meet additional requirements. The IRS must not have waived the failure-to-deposit penalty four or more times during the compliance period, and a failure-to-deposit penalty cannot have resulted from avoiding the Electronic Federal Tax Payment System (EFTPS).
Important: Returns filed only once or infrequently, daily delinquency penalties, and information reporting that depends on another filing are not eligible for AEP.
Penalties Covered by the New Automatic Relief
AEP can provide automatic relief from these common penalties:
- Failure to file.
- Failure to pay.
- Failure to deposit.
The relief applies regardless of the penalty amount when all eligibility requirements are satisfied. Taxpayers must still pay any outstanding tax and interest, along with penalties outside AEP’s scope.
First Time Abate vs. Automatic Exemption from Penalty
| Feature | First Time Abate (FTA) | Automatic Exemption from Penalty (AEP) |
|---|---|---|
| Application method | Taxpayer contacts the IRS to request relief | Applied automatically during original-return processing |
| Relief process | Penalty is assessed and later removed | Eligible penalty is not assessed |
| Taxpayer action | A phone call, written statement, or Form 843 may be required | No action is required when relief is applied |
| Applicable periods | Prior years and periods not considered for AEP | Eligible 2025 tax year returns, 2026 quarterly returns, and later periods |
| Confirmation | IRS reviews the request | IRS sends a notice confirming relief |
| Failure-to-pay penalty | May continue to accrue until the tax is paid | Does not accrue and is not assessed on the qualifying unpaid tax |
During the 2026 transition, some otherwise eligible taxpayers may still receive a notice showing an assessed penalty. Taxpayers who believe they should have qualified for AEP should follow the notice instructions and contact the IRS.
What Happens If You Do Not Qualify for AEP?
Taxpayers who do not meet AEP’s compliance requirements may still request penalty relief based on reasonable cause. The IRS reviews these requests individually and notifies taxpayers of its decision.
Circumstances that may support a reasonable-cause request include:
- Serious illness, incapacitation, or death in the taxpayer’s immediate family.
- Natural disasters or other circumstances outside the taxpayer’s control.
- An inability to obtain records despite reasonable efforts.
- Certain IRS errors or delays.
Reasonable cause is based on the facts and circumstances of each case, so relief is not guaranteed.
People Also Ask: IRS Penalty Relief Questions
Does Automatic Penalty Relief Apply to All Taxpayers?
No. AEP applies only to eligible original returns when the taxpayer meets the IRS’s compliance-history requirements for the prior three years or 12 consecutive quarters.
Will I Still Receive Penalty Notices After 2026?
Possibly. AEP prevents eligible failure-to-file, failure-to-pay, or failure-to-deposit penalties from being assessed, but other penalties may still apply. If a notice includes a penalty you believe should qualify for AEP, contact the IRS using the instructions on the notice.
Can I Request Relief If I Do Not Qualify for Automatic Relief?
Yes. You may request relief based on reasonable cause, although approval depends on your specific circumstances and supporting documentation.
Does AEP Cover All Types of Returns?
No. AEP is limited to the eligible return series listed by the IRS. Information returns, event-based filings, and certain infrequent returns generally do not qualify.
How This Change Supports Taxpayer Rights
By applying relief automatically during return processing, the IRS aims to create a more consistent penalty system for taxpayers with a strong compliance history. The process reduces the need for calls and written requests while continuing to require payment of taxes and interest owed.
How Our Tax Team Can Help
Staying ahead of IRS changes requires proactive compliance planning. Mraz Tax Solutions helps clients:
- Maintain strong filing and payment histories.
- Review penalty notices for possible AEP or reasonable-cause relief.
- Prepare responses to IRS correspondence during the transition.
- Develop strategies to reduce future penalty exposure.
For more details about the program, review the IRS’s official Administrative Penalty Relief guidance.
Maintaining compliance has never been more important. Under AEP, taxpayers who qualify can receive relief without taking extra steps. Contact Mraz Tax Solutions to review your compliance history and determine how the new rules may affect you.