The IRS is beginning a new automatic penalty relief process in summer 2026, but taxpayers should not treat it as a promise that every late filing or late payment charge will disappear.
The new program, called Automatic Exemption from Penalty, or AEP, is meant to apply during original return processing when a taxpayer has a strong compliance history. If the taxpayer qualifies, the IRS says no separate application, form or request is required.
The practical catch is that AEP has boundaries. It generally depends on three prior years of timely compliance, only covers certain penalties and returns, and has a transition period that can still leave some taxpayers needing to contact the IRS.
The Short Answer
If you receive an IRS penalty notice in 2026, read it instead of assuming automatic relief already happened. AEP can help eligible taxpayers avoid some failure-to-file, failure-to-pay and failure-to-deposit penalties, but it does not erase the underlying tax, interest, or every other penalty type.
The IRS says AEP begins with eligible original returns for tax year 2025 and 2026 quarterly returns, then applies to future periods. For original returns with due dates on or after January 1, 2027, AEP is expected to replace the older First Time Abate process for eligible returns.
What Changed
Until now, many taxpayers who qualified for first-time administrative penalty relief had to know the relief existed and ask for it. That could mean calling the IRS, writing a request, or working through a tax professional after a notice arrived.
Under AEP, the IRS says its systems should apply relief automatically during original return processing when the taxpayer qualifies. The agency says it will send a notice explaining that the penalty was not assessed because of the taxpayer's prior timely compliance.
The National Taxpayer Advocate called the change significant because the manual system left many eligible taxpayers without relief. In fiscal year 2025, nearly 220,000 taxpayers received First Time Abate relief, while the advocate estimates that more than 1.5 million would have received relief if AEP had been in place for the same period.
Who Is Most Likely to Qualify
The first screen is your recent record. For annual returns, the IRS points to three prior years of timely filing and payment. For quarterly filers, the comparable standard is 12 consecutive quarters of timely compliance.
The second screen is the type of penalty. IRS guidance says AEP may apply to failure-to-file, failure-to-pay and failure-to-deposit penalties. It generally does not apply to accuracy-related penalties, information return penalties, daily delinquency penalties, or other charges outside the covered categories.
The third screen is the type and timing of the return. The IRS lists common eligible return series such as Forms 1040, 1065, 1120, 940, 941, 943, 944, 945 and CT-1. Returns tied to infrequent transactions, such as estate or gift tax returns, generally are not eligible.
What to Check Before You Relax
Start with the notice, not the headline. If the IRS applies AEP, the notice should say the penalty was not assessed because of timely compliance. If a penalty notice arrives without that explanation, it may mean AEP did not apply, was not available yet for that return, or the return or penalty was outside the program.
Check the tax year and due date. The IRS says First Time Abate remains available for certain returns during the transition, including eligible 2024 tax year returns, eligible 2025 quarterly returns, eligible 2025 tax year returns processed before AEP starts, and eligible 2026 quarterly returns processed before AEP starts. For those, taxpayers may still need to contact the IRS and request relief.
Check whether the bill includes tax or interest. AEP prevents some penalties from being assessed when the taxpayer qualifies. It does not remove the tax owed, interest due, or penalties that are not eligible for AEP.
If a Penalty Notice Arrives
Do not ignore it. Compare the penalty type, return year, and filing history against the IRS rules. If you believe you qualify and the notice does not say AEP was applied, the Taxpayer Advocate says taxpayers can contact the IRS and request penalty relief during the transition.
If AEP does not fit, another route may still exist. The IRS says taxpayers who do not qualify may request penalty relief for reasonable cause when their facts support it, and they may appeal an adverse penalty relief decision.
For many taxpayers, the safest move is boring but useful: keep proof of filing, payment, extensions, deposits, and IRS notices in one place. A clean record is the center of the new automatic system, and clear records make it easier to challenge a notice when the system misses something.
Bottom Line
AEP is a real simplification, not a free pass. It helps taxpayers with a timely compliance history by removing the need to ask for routine relief, but it still rewards prevention: file on time, pay what you can, read any notice carefully, and act quickly if the IRS charges a covered penalty you believe should have been waived.
