IRS Automatic Penalty Relief: What to Know
The IRS is introducing the Automatic Exemption from Penalty, or AEP. This new process offers automatic relief to certain taxpayers with a history of timely compliance.
AEP is designed for taxpayers who usually meet their filing, payment, and deposit obligations but have a one-time issue.
Relief is not guaranteed. Taxpayers should continue to file returns, pay taxes, and make required deposits by each due date.
How AEP works
AEP prevents certain penalties from being assessed during original return processing when the taxpayer meets the eligibility requirements. Taxpayers do not need to file an application or submit a separate request. The IRS will review its records and apply the relief automatically when the requirements are met.
AEP may cover penalties for:
- Failure to file
- Failure to pay
- Failure to deposit
In general, taxpayers must have filed and paid on time for the prior three years. Quarterly filers must have 12 consecutive quarters of timely compliance.
Relief begins with 2025 tax year returns and 2026 quarterly returns, subject to the IRS transition schedule. (IRS)
No action needed from taxpayers
When AEP applies, the IRS will send a notice confirming that an eligible penalty was not assessed. The notice will explain that relief was granted based on the taxpayer’s prior compliance history. Taxpayers generally do not need to respond.
Some penalties still apply
AEP does not remove every type of penalty. It is limited to certain failure-to-file, failure-to-pay and failure-to-deposit penalties.
It generally does not cover:
- Daily delinquency penalties
- Accuracy-related penalties
- Information return penalties
- Other penalties outside the AEP program
Tax, interest and any penalties that do not qualify for relief will still be due.
AEP is not available for every late return
Filing or paying late does not automatically qualify a taxpayer for relief.
The return must be eligible, and all AEP requirements must be met. The three-year compliance history, or 12-quarter history for quarterly filers, is a key part of eligibility.
Taxpayers remain responsible for all filing, payment, deposit and reporting obligations.
Transition from first-time abate
The IRS will begin transitioning from First Time Abate, or FTA, to AEP during the summer of 2026. FTA may still be requested for certain returns processed during the transition, including:
- Eligible 2024 tax year returns
- Eligible 2025 quarterly returns
- Eligible 2025 tax year returns processed before AEP begins
- Eligible 2026 quarterly returns processed before AEP begins
Unlike AEP, FTA must be requested by contacting the IRS.
For original returns with due dates on or after January 1, 2027, AEP will replace FTA.
Other penalty relief may be available
Taxpayers who do not qualify for AEP may still have other options. The IRS may reduce or remove certain penalties when a taxpayer can show reasonable cause and good faith. Each request is reviewed based on its facts and circumstances.
Taxpayers may also appeal an unfavorable penalty-relief decision.
Key reminders
AEP may make penalty relief easier for eligible taxpayers, but it does not change filing or payment deadlines.
Continue to file returns, pay taxes, and make required deposits on time. Review any IRS notice carefully, and speak with your tax advisor when questions arise.
