In July, the IRS announced a new automatic penalty relief program, the Automatic Exemption from Penalty (“AEP”). See IR-2026-83. The IRS’s goal in implementing the AEP is to make penalty relief more consistent and, in some cases, automatic for taxpayers who meet the applicable requirements. The AEP process will gradually replace the traditional First Time Abate program and is “designed to simplify the process and reduce burden for those with a timely compliance history.”
The AEP began this summer and applies to eligible original returns beginning with tax year 2025 and 2026 quarterly returns, and will continue to apply to future tax periods. Taxpayers qualify if they have a history of timely filing and paying any tax due in the three prior tax years (or 12 consecutive quarters for quarterly returns). For qualifying taxpayers, penalties are not assessed during processing for failure to file, failure to pay, or failure to deposit. If eligible, the IRS will automatically apply AEP and issue a notice to the taxpayer confirming that the relief was granted.
It is important to note that the AEP does not mean every IRS penalty will simply disappear. Taxpayers still need to understand why a penalty was assessed, whether they qualify for relief, and whether additional defenses may apply. Depending on the circumstances, reasonable-cause relief or other administrative remedies may remain important, especially since not all penalties are subject to the AEP.
