IRS to phase in automatic penalty relief for taxpayers with timely histories
The Internal Revenue Service announced July 8 that it will begin phasing in a new Automatic Exemption from Penalty process during summer 2026, changing how certain federal tax penalties are handled for taxpayers with strong recent compliance histories.
Eligible taxpayers will not need to submit a separate request for relief under the new process. The IRS says the program will generally be available to people and businesses that filed and paid on time during the prior three years. For taxpayers who file quarterly, eligibility generally requires 12 consecutive quarters of timely filing and payment.
The change applies to specified failure-to-file, failure-to-pay and failure-to-deposit penalties. Those penalties can be assessed when a return is filed late, a tax payment is late or required deposits are not made on time.
How the automatic process will work
The Automatic Exemption from Penalty, or AEP, is intended to replace a request-based approach for taxpayers who meet the IRS’s compliance criteria. Rather than requiring an eligible taxpayer to ask for relief, the agency will apply the process automatically as it phases in.
The IRS currently offers First Time Abate, a penalty-relief option that taxpayers may request when they meet applicable requirements. First Time Abate will be phased out as AEP is implemented. The agency’s announcement does not say that First Time Abate ended immediately on July 8.
That transition distinction matters for taxpayers dealing with a penalty before the new system is fully operational. The IRS has described implementation as beginning during summer 2026, but it has not provided a single nationwide launch date.
Not every return or penalty will qualify
The new process is not a blanket exemption for all taxpayers. Eligibility depends on the taxpayer’s filing and payment history and on whether the penalty falls within the types covered by the program.
Information returns are generally excluded. Returns tied to specific or infrequent transactions are also generally excluded, according to the IRS. The announcement therefore does not establish automatic relief for every type of filing or every penalty a taxpayer might face.
Taxpayers should also distinguish penalty relief from forgiveness of the underlying tax. The AEP process concerns specified penalties; it does not mean that the tax debt itself is erased.
What taxpayers should expect next
The IRS says the process will begin phasing in during summer 2026, with First Time Abate being phased out during the transition. The agency has not released a single nationwide count of how many taxpayers are expected to qualify.
For eligible taxpayers, the practical change is that relief for covered penalties should not require a separate request once the automatic process applies. The program could alter how millions of tax-administration cases are handled, but the IRS’s announcement does not provide a precise estimate of the number of qualifying taxpayers.
Until the phase-in is complete, the timing and application of relief may depend on the implementation status of the new process and the taxpayer’s specific filing history, payment record and type of return. The next known step is the IRS’s summer 2026 implementation of AEP.
Sources
- IRS simplifies penalty relief, introduces automatic process for eligible taxpayers, Internal Revenue Service
- IRS Newsroom, Internal Revenue Service
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