IRS Introduces Automatic Penalty Relief for Eligible Taxpayers

Good news for taxpayers: The Internal Revenue Service (IRS) is making it easier for eligible individuals and businesses to receive penalty relief. Beginning in summer 2026, the IRS will automatically grant penalty relief to qualifying taxpayers with a strong history of filing and paying their taxes on time—eliminating the need to submit a formal request.

This new initiative, called the Automatic Exemption from Penalty (AEP), replaces the long-standing First Time Abate (FTA) program and is designed to simplify the penalty relief process while reducing administrative burdens for taxpayers.

What Is the Automatic Exemption from Penalty (AEP)?

Under the new AEP program, taxpayers who consistently meet their tax obligations may automatically qualify for penalty relief. Instead of requesting relief through paperwork or contacting the IRS, eligible taxpayers will receive it automatically during tax return processing.

According to the IRS, this change reflects its commitment to making tax administration simpler, more consistent, and fairer for taxpayers who have demonstrated a history of compliance.

If you qualify, the IRS will apply the relief and send you a notice confirming that eligible penalties were not assessed.

Who Qualifies?

To be eligible for AEP, taxpayers generally must have a history of timely compliance. This means they have:

• Filed required tax returns on time.

• Paid any taxes due on time during the previous three tax years (or 12 consecutive quarters for quarterly filers).

• Continued to meet IRS filing and payment requirements.

The program will apply to eligible 2025 and 2026 tax returns, as well as future tax years.

When eligibility requirements are met, the IRS will automatically waive penalties related to:

• Failure to file

• Failure to pay

• Failure to deposit

This streamlined process means taxpayers no longer need to request relief for penalties that would otherwise have qualified under the previous system.

Not Every Return Is Eligible

While the new program expands automatic relief for many taxpayers, it does not apply to every tax return.

Certain information returns and returns filed only because of specific transactions or infrequent events—such as Form 706 (U.S. Estate Tax Return) and Form 709 (Gift Tax Return)—generally do not qualify for AEP.

Additionally, the program only prevents eligible penalties from being assessed. Taxpayers are still responsible for paying any taxes owed, applicable interest, and any penalties that are not covered under the AEP rules.

What Happens to First Time Abate?

As the IRS transitions to AEP during summer 2026, the First Time Abate (FTA) program will gradually be phased out.

During the transition period, some taxpayers may still qualify for First Time Abate for eligible 2025 and 2026 tax returns. Beginning with returns that have original due dates on or after January 1, 2027, AEP will become the standard administrative penalty relief program.

Taxpayers who do not qualify for AEP may still request penalty relief based on reasonable cause. The IRS will continue reviewing those requests individually and notify taxpayers of its decision.

Why This Matters

This update is welcome news for taxpayers who consistently meet their tax obligations. By automatically recognizing taxpayers with a strong compliance history, the IRS is reducing paperwork, improving efficiency, and making the penalty relief process more predictable.

For taxpayers, the change means less time spent requesting relief and greater confidence that eligible penalties will be handled automatically. It's also a reminder that maintaining accurate records, filing returns on time, and paying taxes by the due date can provide benefits beyond avoiding penalties—they may also make you eligible for automatic relief if an issue arises.