An Overview
The Internal Revenue Service (IRS) is attempting to simplify how certain taxpayers receive penalty relief. Starting in summer of 2026, the IRS is phasing out its long-standing First Time Abate (FTA) administrative relief program and replacing it with a new automatic process called the Automatic Exemption from Penalty (AEP).
What is Changing?
Under the new AEP process, eligible taxpayers will no longer need to request relief from certain penalties. The IRS grants it automictically. The new process will apply to eligible original returns beginning with:
- Tax year 2025
- Quarterly returns for 2026
- Subsequent tax periods
When a taxpayer meets the eligibility requirements, the IRS will not assess certain penalties during return processing, including failure-to-file, failure-to-pay, and failure-to-deposit penalties. The IRS will also issue a notice confirming that the relief has been granted.
Who Qualifies?
To qualify, taxpayers generally must have filed required returns and paid any tax due on time during the prior three years, or twelve consecutive quarters for quarterly returns.
However, not all returns will qualify for AEP, including:
- Information returns and
- Returns filed only in response to specific transactions or infrequent events generally are not eligible.
Taxpayers who do not qualify for AEP may still request penalty relief based on reasonable cause. They will also remain responsible for paying any tax and interest due, as well as any penalties that are not eligible for relief.
Monitor the Transition Period
During the transition period, some taxpayers may still receive penalty notices for tax year 2025 returns and 2026 quarterly returns. Taxpayers who believe they qualify for FTA during this period, or who believe they qualify for AEP but did not receive the relief automatically, may contact the IRS for assistance.
AEP will replace FTA for eligible returns with original due dates on or after January 1, 2027. As implementation continues, the IRS may issue additional guidance and instructions, so taxpayers should monitor the IRS website for the latest updates.