The IRS announced that this summer, it will transition to a new “systemic relief program” dubbed Automatic Exemption from Penalty (AEP). The program will provide automatic penalty relief to taxpayers who have a history of filing and paying on time. (IR 2026-83, 7/8/2026)
AEP will replace First Time Abate and is intended to provide a simpler and less burdensome process for taxpayers seeking penalty relief. “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,” said IRS CEO Frank Bisignano.
Eligibility for AEP
Qualified taxpayers will receive a letter explaining that although they filed or paid late, penalties were not assessed due to their compliance history. Taxpayers will not need to contact the IRS or respond to a notice to receive AEP relief.
AEP will be available to taxpayers with a three-year history of timely filing and paying their taxes (or a 12-quarter history for quarterly filers).
The new process will apply for original returns from the 2025 tax year and 2026 quarterly returns.
Qualified taxpayers can receive relief from failure-to-file, failure-to-pay, and failure-to-deposit penalties under AEP. Specifically, the IRS lists these return series as eligible for AEP: Forms 1040, 1065, 1120; Forms 940, 941, 943, 944, 945; and Form CT-1.
The IRS notes that not all returns are eligible. For example, information returns and transaction-specific returns (such as Form 706, U.S. Estate Tax Return or Form 709, Gift Tax Return) are not eligible for AEP.
Transition from First Time Abate to AEP
The IRS said it will phase out First Time Abate this summer, with AEP fully replacing First Time Abate for returns with original due dates of January 1, 2027, or later.
During the transition period, some qualified taxpayers may still receive penalty notices. Taxpayers who believe they qualify for penalty relief can contact the IRS to request First Time Abate.
The IRS stresses that taxpayers who receive penalty relief must still pay any tax and interest due. They also may be subject to penalties that don’t qualify for relief.
In addition, taxpayers who do not qualify for AEP can request penalty relief based on reasonable cause, the agency explains.
For more on First Time Abate and IRS penalty relief, see Checkpoint’s Federal Tax Coordinator 2d ¶ V-1620.
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