No one wants to receive an IRS penalty notice. While penalties are sometimes unavoidable, many taxpayers who consistently file and pay on time have long been able to request relief through the IRS’ First Time Abate (FTA) program. The catch? They had to know the program existed and contact the IRS to request it.
That is changing.
Beginning in summer 2026, the IRS is introducing a new Automatic Exemption from Penalty (AEP) program that will automatically grant penalty relief to eligible taxpayers with a strong history of compliance. The goal is simple: reduce paperwork, eliminate unnecessary requests and reward taxpayers who consistently meet their tax obligations.
How the new program works
The Automatic Exemption from Penalty applies to eligible original tax returns beginning with the 2025 tax year and 2026 quarterly returns, with future tax periods covered as the program expands.
To qualify, taxpayers generally must have:
- Filed required returns on time for the previous three tax years (or 12 consecutive quarters for quarterly filers).
- Paid any tax due during that compliance period.
If eligible, the IRS will automatically waive certain penalties during return processing. There is no application to complete, no phone call to make and no written request to submit.
The program covers three of the most common penalties:
- Failure-to-file penalties
- Failure-to-pay penalties
- Failure-to-deposit penalties
Taxpayers who qualify will receive a notice from the IRS confirming that the penalty relief has been applied automatically.
A welcome change for taxpayers
For years, many taxpayers missed out on penalty relief simply because they were unaware of the First Time Abate (FTA) program or did not know how to request it. Others spent valuable time contacting the IRS to obtain relief they likely qualified for all along.
The new automatic process removes those barriers. By applying relief during return processing, the IRS is creating a more consistent system while reducing administrative burden for both taxpayers and the agency.
Not every return qualifies
Although AEP represents a significant improvement, it does not apply to all types of tax returns.
Certain information returns and returns filed only because of specific transactions or infrequent events—such as estate tax returns (Form 706) and gift tax returns (Form 709)—generally are not eligible for automatic relief.
In addition, taxpayers who do not meet the AEP requirements may still qualify for penalty relief if they can demonstrate reasonable cause. The IRS will continue reviewing those requests on a case-by-case basis.
First Time Abatement is going away
The IRS will gradually phase out the FTA program during 2026. During the transition, some taxpayers who qualify for relief may still receive penalty notices. If that happens, eligible taxpayers can continue requesting FTA until AEP fully replaces the program for eligible returns with original due dates on or after January 1, 2027.
What this means for you
The new Automatic Exemption from Penalty is good news for taxpayers who have a consistent history of meeting their tax obligations. It simplifies the process, reduces unnecessary interactions with the IRS and helps ensure that eligible taxpayers receive the relief they have earned.
Keep in mind, however, that penalty relief does not eliminate the underlying tax bill or any applicable interest. Taxpayers remain responsible for paying taxes owed on time whenever possible.
If you receive an IRS penalty notice or have questions about whether you qualify for automatic relief or reasonable-cause relief, professional guidance can help you understand your options and avoid paying unnecessary penalties.
Have questions about an IRS notice or penalty? Contact your Stephano Slack tax manager or partner at 610-687-1600 or TaxInfo@StephanoSlack.com to discuss your situation. Our tax professionals can help determine whether you qualify for penalty relief and assist you in resolving IRS issues efficiently and accurately.
Author Jackie Himes, CPA, partner, is a trusted authority in serving high-net-worth individuals and closely held businesses. She provides strategic financial guidance that fuels growth and sustainability. She can be contacted at 610-710-4057 or Jhimes@stephanoslack.com.
Disclaimer: This content is for informational purposes only and doesn’t constitute professional advice.
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