Receiving an IRS penalty notice can be frustrating, especially when a taxpayer has consistently filed and paid taxes on time but made a one-time mistake.
Until now, eligible taxpayers often had to contact the IRS and specifically request First Time Abate relief. That process is beginning to change.
In July 2026, the IRS announced a new program called the Automatic Exemption from Penalty, or AEP. Under this program, certain taxpayers with a strong compliance history may receive penalty relief automatically—without submitting a separate application or calling the IRS.
This sounds like welcome news. However, it does not mean that every late return or late payment will automatically be forgiven.
What Is the Automatic Exemption from Penalty?
The AEP program is designed for taxpayers who generally meet their tax obligations on time but experience a one-time compliance problem.
Depending on eligibility, the program may prevent the following penalties from being assessed:
- Failure-to-file penalties
- Failure-to-pay penalties
- Failure-to-deposit penalties
No separate form or application is required. If a taxpayer qualifies, the IRS will apply the relief during the processing of the original return and send a notice confirming that the penalty was not assessed.
The program is expected to begin during the summer of 2026 and generally applies to eligible original returns beginning with tax year 2025, 2026 quarterly returns, and future tax periods.
Who May Qualify?
One of the most important requirements is the taxpayer’s previous compliance history.
Generally, a taxpayer must have filed the required returns and paid the taxes due on time for the previous three years. For quarterly returns, the IRS generally looks at the previous 12 consecutive quarters.
This means the IRS is not simply overlooking a late filing or payment. It is recognizing taxpayers who have demonstrated a consistent record of compliance before making a one-time mistake.
Does This Mean You Can File or Pay Late Without a Penalty?
No.
The new program should not be treated as permission to miss a tax deadline. It does not eliminate the underlying penalty laws, and it does not cover every taxpayer, return, or penalty.
For example, AEP generally does not cover:
- Accuracy-related penalties
- Information-return penalties
- Daily delinquency penalties
- Certain estate and gift tax returns
- Other penalties outside the program
Even when a penalty is waived, the taxpayer must still pay the underlying tax, applicable interest, and any penalties that are not covered by AEP.
What Happens to First Time Abate?
The IRS is beginning to phase out the existing First Time Abate, or FTA, process.
During the transition, some taxpayers may still receive a penalty notice even though they could qualify for relief. For certain 2024 and 2025 returns and some 2025 or 2026 quarterly returns processed before AEP begins, taxpayers may still need to contact the IRS and request First Time Abate.
For eligible original returns with due dates on or after January 1, 2027, AEP is expected to replace First Time Abate.
Taxpayers who do not qualify for automatic relief may still be able to request penalty abatement based on reasonable cause.
Our Practical View
We believe automatic penalty relief is a positive change. Taxpayers with a good compliance history should not have to navigate a complicated IRS process to obtain relief for a one-time mistake.
However, the word automatic may create false confidence.
A taxpayer may assume that a penalty will disappear, only to discover that the return, tax period, or type of penalty is not eligible. The transition from First Time Abate to AEP may also cause confusion because different procedures can apply depending on the return and processing date.
Our recommendation is simple: continue treating every filing, payment, and payroll deposit deadline as mandatory. If a penalty notice arrives, do not assume the IRS has already evaluated every available form of relief.
The notice should be reviewed to determine:
- Why the penalty was assessed
- Whether AEP should have applied
- Whether First Time Abate remains available
- Whether reasonable-cause relief can be requested
A strong compliance history is valuable, but it is best viewed as protection against an isolated mistake—not as a substitute for filing and paying on time.
Final Takeaway
The IRS’s new Automatic Exemption from Penalty may make relief easier and more consistent for eligible taxpayers. But automatic relief is limited, and receiving an IRS notice does not necessarily mean that all available options have already been considered.
If you receive a penalty notice, review it carefully before paying or ignoring it. In many cases, the real question is not simply whether a penalty was assessed, but whether it should remain.
Official IRS sources:
- IRS announces Automatic Exemption from Penalty
- Automatic Exemption from Penalty: What taxpayers should know
This article is for general informational purposes only and does not constitute tax or legal advice. Eligibility for penalty relief depends on the taxpayer’s specific facts and circumstances.