Short answer
The Automatic Exemption from Penalty (AEP), announced in IR-2026-83 (IRS.gov, July 2026) on July 8, 2026, stops the IRS from charging failure-to-file, failure-to-pay and failure-to-deposit penalties when your prior three years (or 12 quarters) were compliant. It starts with tax year 2025 (IRS.gov, 2026) returns and fully replaces first-time abatement for returns originally due on or after January 1, 2027 (IRS.gov, 2026).
Key takeaways
- AEP is automatic: the IRS checks your record while it processes your original return and sends a notice when relief is applied. There is no form to file.
- It needs 3 years (IRS.gov, 2026) of timely filing and payment for the same return type (or 12 consecutive quarters for quarterly returns).
- Unlike first-time abatement, the penalty is never assessed, and the IRS says the failure-to-pay penalty does not keep accruing on the unpaid tax.
- AEP does not remove the tax, the interest on the tax, or penalties it doesn’t cover, such as accuracy-related and information return penalties.
- During the 2026 changeover, you may still get a penalty notice; if you qualify, call the IRS and ask for first-time abatement.
What AEP is and when it starts
On July 8, 2026 the IRS announced (in IR-2026-83) a “systemic administrative relief program” called the Automatic Exemption from Penalty. It began in summer 2026 (IRS.gov, 2026). The IRS said it replaces First Time Abate, its most common penalty relief, for people who “historically pay on time.” The difference is who does the work. Under first-time abatement you had to call or write after the penalty was charged. Under AEP the IRS checks your compliance history when your original return finishes processing and simply doesn’t assess the penalty.
| Date | What happens |
|---|---|
| July 8, 2026 | AEP announced in IR-2026-83; IRS fact sheet FS-2026-12 follows. |
| summer 2026 | AEP begins with tax year 2025 returns and 2026 quarterly returns, and all later periods. |
| Transition (2026) | First-time abatement is phased out. Some qualifying people may still get penalty notices and can request it. |
| January 1, 2027 | For eligible original returns due on or after this date, first-time abatement is no longer available; AEP replaces it. |
AEP has nothing to do with the 2011-2012 Fresh Start announcements. It is a 2026 change to penalty relief, one of the five areas covered in our Fresh Start guide.
AEP vs first-time abatement
The IRS published this comparison on its administrative penalty relief page (July 2026):
| Feature | First-time abatement (FTA) | Automatic Exemption from Penalty (AEP) |
|---|---|---|
| Which periods | 2024 and earlier tax years, 2025 quarterly returns, and 2025 annual and 2026 quarterly returns not considered for AEP | 2025 tax year and 2026 quarterly returns, and all later periods |
| How relief is granted | You request it | Automatic |
| What you must do | Call the IRS, write, or file Form 843 | Nothing |
| Penalty assessment | Penalty is assessed first, then removed | Penalty is never assessed |
| Failure-to-pay penalty on unpaid tax | May keep accruing until the tax is paid in full | Does not accrue and is not assessed |
| Look-back | 3 years (or 12 quarters) | 3 years (or 12 quarters) |
| Penalties covered | Failure to file, pay and deposit | Failure to file, pay and deposit |
The eligibility test is the same. What changes is timing and effort, and for people who still owe, the failure-to-pay treatment. Under first-time abatement the IRS keeps charging that penalty on the unpaid balance until it is paid. Under AEP, per the IRS table, it does not accrue on the unpaid tax. Interest still does.
Who qualifies for AEP
You need a timely compliance history, which the IRS defines as:
- the same type of return as the late one was filed on time for the prior 3 years (or 12 consecutive quarters), and
- no penalty in that period other than an estimated tax penalty, or any penalty was later removed for reasonable cause or IRS error, and
- for businesses: failure-to-deposit penalties were not waived four or more times in the period, and no deposit penalty was charged for avoiding EFTPS.
The IRS news release puts it in plain terms: you qualify if you have “a history of timely filing the return and paying any tax due in the three prior years.” AEP applies only to original returns and only to these forms:
| Return type | Forms eligible for AEP |
|---|---|
| Income tax | 1040 (individuals), 1065 (partnerships), 1120 (corporations) |
| Employment tax | 940, 941, 943, 944, 945 |
| Railroad retirement | CT-1 |
A late 2025 Form 1040 from someone who filed and paid 2022, 2023 and 2024 on time is the typical AEP case. Someone who filed 2023 late and was charged a penalty that stayed on the account does not qualify for 2025. That person can still ask for relief based on reasonable cause.
What AEP does not cover
Myth: AEP wipes out what you owe for a late year.
Fact: The IRS says that while AEP prevents certain penalties, “taxpayers must still pay any tax and interest due, as well as any penalties not eligible for relief.”
- The tax and the interest on it. Interest runs on unpaid tax at the federal short-term rate plus 3 percentage points (IRS.gov, 2026), reset quarterly (7% (IRS.gov, Jul-Dec 2026) for July through December 2026, per IRS.gov).
- Other penalties. FS-2026-12 lists daily delinquency penalties, accuracy-related penalties and information return penalties as outside AEP. The estimated tax penalty is also not covered.
- Returns filed once or rarely. Event-based returns such as Form 706 (estate tax) and Form 709 (gift tax) and information reporting that depends on another filing are excluded.
- Amended returns and penalties from later changes. AEP is applied when an original return is processed.
- People without the clean three-year record. For them, penalties are charged as usual.
Got a penalty notice during the transition? Ask for first-time abatement
The IRS says that while it phases in AEP, “some qualifying taxpayers may still receive penalty notices” for eligible 2025 returns and 2026 quarterly returns. Its fact sheet says first-time abatement still applies, but only on request, to:
- eligible 2024 tax year returns
- eligible 2025 quarterly returns
- eligible 2025 tax year returns processed before AEP started
- eligible 2026 quarterly returns processed before AEP started
- Read the notice. Note the tax period, the penalty and the amount.
- Call the number in the top right corner of the notice. Say you believe you qualify for penalty relief based on your compliance history. You don’t have to name FTA or send documents; the IRS checks your account.
- If the call doesn’t resolve it, write. Send a signed statement or Form 843 to the address in the Form 843 instructions or on the notice.
- Pay or set up a plan for any tax still owed. Under first-time abatement, failure-to-pay keeps accruing until the tax is paid, and the IRS can remove the later amount once you pay in full.
If you received an AEP notice, you don’t need to respond. If you got a penalty notice and believe AEP should have applied, the IRS says to contact it. More on the whole process is on our penalty relief page.
Is AEP the IRS "one-time forgiveness" program?
No. Relief companies and search results often describe first-time abatement, and now AEP, as “one-time forgiveness.” The IRS fact sheet is blunt: “AEP does not eliminate penalties under the law” and it “does not apply to every taxpayer, and does not apply to every type of penalty.” It forgives no tax and no interest on tax. There is no general IRS forgiveness program. See Fresh Start myths for the other claims to watch for.
AEP also means nobody needs to charge you to request first-time abatement on a future return that qualifies. That makes a sales pitch built on “we’ll get your penalties waived” worth questioning. It still pays to get help when AEP doesn’t apply: a reasonable cause request, several penalized years, a business with deposit penalties, or an appeal of a denial.
If AEP doesn't apply to you
- Reasonable cause. Serious illness, a disaster, or records you could not get can still justify relief. See IRS penalty relief and first-time abatement.
- A payment plan. If you filed on time and set up an approved plan, the failure-to-pay rate drops from 0.5% (IRS.gov, 2026) to 0.25% (IRS.gov, 2026) a month. Compare IRS payment plans.
- Free help. The Taxpayer Advocate Service helps when IRS processes break down, and Low Income Taxpayer Clinics represent eligible taxpayers for free or a small fee.
- An appeal. A denied written request for penalty relief can generally be appealed to the IRS Independent Office of Appeals.
Frequently asked questions
It is automatic IRS penalty relief announced on July 8, 2026. If you file or pay an eligible original return late but filed and paid on time for the three prior years (or 12 quarters), the IRS does not charge the failure-to-file, failure-to-pay or failure-to-deposit penalty, and sends you a notice saying so.
No. There is no application, form or phone call. The IRS applies AEP while it processes your original return and sends a notice confirming the relief. You don’t need to respond to that notice.
It began in summer 2026 and applies to tax year 2025 returns, 2026 quarterly returns and later periods. It fully replaces first-time abatement for eligible returns originally due on or after January 1, 2027.
Yes, over time. During the transition, first-time abatement is still available on request for 2024 returns, 2025 quarterly returns and 2025 or 2026 returns processed before AEP started. After the changeover it is no longer available for new returns.
It does not remove interest on unpaid tax. Because the covered penalties are never assessed, there is also no interest on them. You still owe the tax, interest on the tax, and any penalty AEP doesn’t cover.
Information returns, returns filed only for specific events or rarely (such as Form 706 and Form 709), and forms that depend on another filing. AEP also doesn’t apply to accuracy-related, information return, daily delinquency or estimated tax penalties.
Call the number on the notice and ask for penalty relief based on your compliance history. During the transition the IRS says qualifying people may still receive notices and can request first-time abatement. If it isn’t resolved by phone, file Form 843.
Sources
- IRS IR-2026-83: IRS simplifies penalty relief, introduces automatic process for eligible taxpayers (July 8, 2026)
- IRS FS-2026-12: Automatic Exemption from Penalty, what taxpayers should know (July 2026)
- IRS Tax Tip 2026-59: Eligible taxpayers may receive automatic penalty relief (July 30, 2026)
- IRS: Administrative penalty relief
- IRS: Penalty relief for reasonable cause
- IRM 20.1.1, Penalty Handbook: Introduction and Penalty Relief
- IRS: Quarterly interest rates
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