The IRS is simplifying tax compliance with a new Automatic Exemption from Penalty (AEP) program. Learn who qualifies, how it works, and what it means for taxpayers.

The Internal Revenue Service (IRS) has announced a significant update to its penalty relief process that could benefit more than 1.5 million taxpayers each year. Beginning in summer 2026, the IRS will gradually roll out the Automatic Exemption from Penalty (AEP) program, making it easier for eligible taxpayers to receive relief without filing additional paperwork or contacting the agency.

The new system replaces the long-standing First Time Abate (FTA) process for qualifying taxpayers, helping reduce administrative burdens while ensuring those with a strong history of tax compliance receive the relief they deserve.

What Is the IRS Automatic Exemption from Penalty (AEP)?

Under the previous First Time Abate program, taxpayers who qualified for penalty relief had to request it after receiving an IRS penalty notice. Many eligible individuals never received relief simply because they were unaware the program existed or didn’t know how to apply.

The new Automatic Exemption from Penalty (AEP) changes that process entirely. Instead of requiring taxpayers to submit a request, the IRS will automatically review eligible returns and apply penalty relief when the taxpayer meets the program’s qualifications.

Who Qualifies for Automatic IRS Penalty Relief?

To qualify for the new automatic penalty relief program, taxpayers generally must:

• Have filed required tax returns on time
• Have paid taxes when due or arranged payment
• Have no significant penalties during the prior three years (or previous 12 quarters for many quarterly filers)

If these requirements are met, the IRS can automatically waive certain penalties during return processing without any action from the taxpayer.

Which Penalties Are Covered?

The AEP program generally applies to three common IRS penalties:

• Failure-to-file penalties
• Failure-to-pay penalties
• Failure-to-deposit penalties

It’s important to note that the program does not eliminate taxes owed or any interest that has accrued. It only removes eligible penalties for qualifying taxpayers. Certain return types, including some estate, gift, and information returns, are not covered.

When Does the New Program Take Effect?

The IRS will begin transitioning to the Automatic Exemption from Penalty program during summer 2026.

During the transition:

• Some taxpayers filing 2025 individual returns or 2026 quarterly returns may still receive penalty notices.
• Eligible taxpayers can continue requesting relief through the existing First Time Abate process if necessary.
• For eligible returns with original due dates on or after January 1, 2027, AEP will replace First Time Abate as the standard administrative relief process.

Why This Change Matters

The IRS estimates that while only about 220,000 taxpayers received First Time Abate relief each year under the old system, more than 1.5 million taxpayers could benefit annually once the automated process is fully implemented.

By removing the need to request routine penalty relief, the IRS hopes to make tax administration more efficient and ensure eligible taxpayers receive fair treatment regardless of whether they know about the relief program or have professional tax assistance.

Final Thoughts

The IRS’s new Automatic Exemption from Penalty program represents one of the most significant taxpayer-friendly administrative changes in recent years. By automatically granting penalty relief to eligible taxpayers with strong compliance histories, the agency is reducing paperwork, improving access to relief, and simplifying the tax filing process.

Taxpayers should remember that while eligible penalties may be waived automatically, they are still responsible for paying any taxes and interest owed. Those who do not qualify for AEP may still request penalty relief based on reasonable cause, which the IRS will review on a case-by-case basis.