Beginning this summer, the IRS is phasing in a new Automatic Exemption from Penalty (AEP) program that will replace the first-time penalty abatement program (which is being phased out). AEP will be fully effective for eligible returns with original due dates on or after January 1, 2027. (IR-2026-83)
Under AEP, the IRS will automatically provide penalty relief to qualified taxpayers; taxpayers will no longer have to apply for penalty abatement. If eligible, the IRS will apply AEP and issue a notice confirming that the relief was granted.
Taxpayers qualify if they have a history of timely filing the return and paying any tax due in the three prior years (or 12 consecutive quarters for quarterly returns). When taxpayers qualify, penalties are not assessed during processing for:
- Failure to file;
- Failure to pay; or
- Failure to deposit.
Estimated tax penalties are not available for abatement under either the existing first-time abatement program or under the new AEP.
Not all returns are eligible for AEP. For example, information returns and returns that are filed only in response to specific transactions or infrequent events (such as Form 706, U.S. Estate Tax Return, or Form 709, Gift Tax Return) generally are not eligible.
During the transition from first-time penalty abatement to the AEP program, some qualifying taxpayers may still receive penalty notices for eligible tax year 2025 and 2026 quarterly returns. Taxpayers who believe they qualify may contact the IRS to request first-time penalty abatement.
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