IRS Begins Automatic Tax Penalty Relief for Eligible Taxpayers This Summer

The IRS is beginning a nationwide shift to automatic penalty relief for taxpayers with a strong record of filing returns and paying taxes on time. The new program, called Automatic Exemption from Penalty, or AEP, is intended to reduce the need for eligible taxpayers to contact the agency to request relief.

The IRS announced the change on July 8, 2026, and said implementation began during summer 2026. AEP is replacing First Time Abate, the administrative relief process that previously required taxpayers to ask the IRS to remove certain penalties.

Who may qualify

In general, taxpayers must have timely filed the same type of return and paid the tax due during the prior three years. For quarterly filers, the lookback is 12 consecutive quarters. The IRS also considers whether penalties during that period were absent or were later removed because of reasonable cause or IRS error.

The program is not automatic forgiveness for every late filer. Business taxpayers face additional requirements, including limits on prior failure-to-deposit penalty waivers and restrictions involving the Electronic Federal Tax Payment System.

Which penalties and returns are covered

AEP can prevent certain failure-to-file, failure-to-pay and failure-to-deposit penalties from being assessed. IRS guidance lists Forms 1040, 1065, 1120, 940, 941, 943, 944, 945 and CT-1 among the return series eligible for consideration.

The program generally begins with 2025 tax-year returns and 2026 quarterly returns, along with later eligible periods. Event-based or infrequently filed returns, information reporting tied to another filing and the Daily Delinquency Penalty are among the exclusions listed by the IRS.

What taxpayers should do during the transition

For taxpayers who qualify, the IRS applies AEP when an eligible original return completes processing. The agency will send a notice explaining that relief was granted, and taxpayers generally will not need to respond.

The transition may be less straightforward for some 2025 and 2026 filings. The IRS says qualifying taxpayers may still receive a penalty notice while First Time Abate is being phased out. Anyone who receives a notice showing an assessed penalty but believes AEP should have applied should review the notice and contact the IRS using its instructions rather than ignoring it.

What the program does not erase

AEP is an administrative penalty-relief program, not a cancellation of the underlying tax bill. Taxpayers remain responsible for unpaid tax, interest and penalties that are outside the program. People who do not qualify may still request relief based on reasonable cause.

The IRS says AEP will replace First Time Abate for eligible returns with original due dates on or after January 1, 2027. Until then, taxpayers and businesses should keep records of filing and payment history and check each IRS notice carefully.

Sources

• IRS administrative penalty relief guidance
• National Taxpayer Advocate analysis