Which penalties are covered by the Automatic Exemption from Penalty?

The Automatic Exemption from Penalty generally covers eligible failure-to-file, failure-to-pay and failure-to-deposit penalties. Accuracy-related penalties, fraud penalties and certain information-return penalties are generally outside the program.

Does automatic penalty relief eliminate the underlying tax and interest?

No. Automatic penalty relief applies only to eligible covered penalties. The taxpayer must still pay the underlying tax, interest on unpaid tax and any penalties that are outside the program.

How is AEP different from First-Time Abatement?

First-Time Abatement generally required an eligible taxpayer to request relief after a penalty was assessed. Under AEP, the IRS identifies eligible returns during processing and does not assess the covered penalty.

When does IRS automatic penalty relief begin?

The IRS announced that AEP will begin during summer 2026 for eligible original 2025 returns and qualifying 2026 quarterly returns. AEP is expected to replace First-Time Abatement for eligible returns with original due dates on or after January 1, 2027.

What happens if a taxpayer does not qualify for automatic penalty relief?

A taxpayer who does not qualify automatically may still request penalty relief based on reasonable cause. Depending on the circumstances, relief may be requested by responding to an IRS notice, contacting the IRS or filing Form 843.

Does a taxpayer need to submit a form to receive AEP?

Generally, no separate application is required when the IRS identifies an eligible account. During the 2026 transition, taxpayers should still review penalty notices and contact the IRS if they believe automatic relief should have applied.

IRS Automatic Penalty Relief 2026 | AEP Taxpayer Guide

In mid-2026, the IRS will begin applying automatic penalty relief for eligible taxpayers with a history of timely compliance. The new Automatic Exemption from Penalty (AEP) program is designed to remove a familiar administrative hurdle: asking for relief that the IRS would routinely grant.

AEP replaces the former First-Time Penalty Abatement program. Instead of assessing certain penalties and waiting for a taxpayer to request an abatement, the IRS will identify eligible accounts during return processing and waive those penalties automatically.

The central pointAEP waives only covered penalties. Taxpayers still owe the underlying tax and interest on unpaid tax, and other penalties may still apply.

Who qualifies for automatic relief?

Eligibility is based on a recent, clean compliance record. In general, taxpayers must have timely filed required returns and timely paid tax due for the previous three tax years. For relevant quarterly business filers, the comparable lookback period is 12 consecutive quarters.

3 yearsof timely filing and payment history for most taxpayers

12 quartersof compliance history for relevant business filers

0 formsrequired when the IRS identifies an eligible account

Taxpayers should not have unresolved late-filing, late-payment, or deposit penalties in the lookback period, except where those penalties were already removed for reasonable cause or IRS error. Businesses generally cannot have had more than three deposit penalties waived in the prior three years and cannot have used abusive deposit practices, such as avoiding required electronic deposits.

Which penalties does AEP cover?

AEP applies to three common federal tax penalties, regardless of amount. If the taxpayer qualifies, the IRS does not assess the covered penalty in the first place.

Covered penalty	Code section	What it addresses
Failure to file	IRC §§ 6651(a)(1), 6698(a)(1), 6699(a)(1)	A required return filed after its due date.
Failure to pay	IRC §§ 6651(a)(2), 6651(a)(3)	Tax not paid by the applicable deadline.
Failure to deposit	IRC § 6656	Late or short employment-tax deposits.

Accuracy-related penalties, fraud penalties, daily delinquency penalties, and penalties on certain one-off or information returns are generally outside the program. AEP also does not erase unpaid tax or interest.

AEP vs. First-Time Abatement

First-Time Abatement ordinarily required the taxpayer to know the program existed and ask for it, often by telephone or on Form 843. AEP is intended to make the same type of relief automatic for qualified taxpayers.

First-Time Abatement	Automatic Exemption from Penalty
Taxpayer had to request relief.	IRS applies relief automatically when eligibility is identified.
Penalty was generally assessed before abatement.	Covered penalty is not assessed.
Interest could accrue on the assessed penalty pending abatement.	No interest accrues on an unassessed covered penalty.

Rollout and transition timeline

Summer 2026: AEP begins for original 2025 returns and 2026 business-quarter returns included in the phased rollout.
During 2026: Taxpayers may still receive notices during the transition. If a taxpayer believes they qualify, they should contact the IRS and request an account review. First-Time Abatement may remain relevant for returns handled under transition rules.
January 1, 2027 and later: AEP is expected to replace First-Time Abatement for eligible returns due on or after this date.

What if you do not qualify?

Taxpayers who do not meet the automatic criteria may still seek penalty relief based on reasonable cause. This generally means demonstrating that circumstances beyond the taxpayer’s control—such as serious illness, a natural disaster, or another documented hardship—made timely filing or payment impossible or impracticable.

Reasonable-cause relief can generally be requested by responding to a penalty notice, contacting the IRS, or filing Form 843 when appropriate. Keep supporting records and explain clearly how the circumstances caused the late filing, payment, or deposit.

Practical exampleJane timely filed and paid for 2022 through 2024, but files her 2025 return late in June 2026. If she otherwise qualifies, the IRS should automatically waive her covered late-filing and late-payment penalties. Jane still owes the tax and interest on the unpaid tax. If Jim missed a required return in 2024, he may not qualify automatically, but he may still seek reasonable-cause relief if the facts support it.

Key takeaways for taxpayers

Maintain a clean record. Timely filing and payment history is the foundation for automatic relief.
Do not ignore a notice. Review every penalty notice, particularly during the 2026 transition.
Remember what remains due. AEP does not waive tax, interest on unpaid tax, or penalties outside the program.
Consider other relief. Reasonable-cause relief remains available when automatic eligibility is not met.

AEP should make common penalty relief more consistent and accessible for responsible taxpayers. Keeping returns and payments current remains the best way to avoid penalties, interest, and collection issues. Taxpayers with questions about a notice or their eligibility should consider consulting a qualified tax professional.

Sources: IRS News Release IR-2026-83 (July 8, 2026); IRS Administrative Penalty Relief guidance (July 2026); Journal of Accountancy (July 2026); and AbitOs Accountants (July 2026). This article is for general informational purposes and is not tax advice.

IRS automatic penalty reliefwhat taxpayers need to know for 2026