On July 8, 2026, the IRS announced that it was implementing a new automatic process to provide penalty relief for taxpayers with a history of filing and paying on time. Called the Automatic Exemption from Penalty (AEP), this process replaces the “First Time Abate” administrative relief previously available. IRS CEO Frank Bisignano said of the program, “By automatically applying penalty relief, the IRS recognizes that taxpayers who historically pay on time should not have to make a formal request for relief that is routinely granted.”
Under the AEP, taxpayers won’t be assessed penalties for filing their return late or paying their tax late or failing to make correct deposits in the current year if they:
The AEP applies to:
AEP relief begins with this tax year and quarterly returns for:
AEP relief is automatic. Taxpayers receiving AEP relief will receive a letter explaining that even though they filed late, paid the tax late, or didn’t make the deposit in a timely manner, the applicable penalties were not assessed because of the taxpayer’s history of timely compliance.
Note: During the transition to AEP, The IRS has stated that some qualifying taxpayers may still receive penalty notices for tax year 2025 and 2026 quarterly returns. Taxpayers who believe they qualify may still contact the IRS to request First Time Abate during this period. AEP will fully replace First Time Abate for eligible returns with original due dates on or after Jan. 1, 2027.
Taxpayers who do not qualify for the AEP relief, are still eligible to request penalty relief based upon reasonable cause.
The IRS has provided the following table to summarize the differences between AEP and First Time Abate:
| Feature | First Time Abate (FTA) | Automatic Exemption from Penalty (AEP) |
|---|---|---|
| Applicable timeframe | Applies to eligible 2025 tax year and 2026 quarterly returns (not considered for AEP), plus all prior years/periods | Applies to 2025 tax year and 2026 quarterly returns, and all future tax years/quarters |
| How relief is granted | Not automatic | Automatic |
| Action required by taxpayer | Taxpayers must contact the IRS to request relief | No taxpayer action required |
| Penalty assessment | Penalty is assessed first, then later removed | No penalty assessment is made |
| Failure to Pay penalty | May continue to accrue until the tax is fully paid | Does not accrue and is not assessed on unpaid tax |
By Kristine Tidgren
Director, Center for Agricultural Law & Taxation
Adjunct Assistant Professor, Agricultural Education
Iowa State University
Disclaimer: The information referenced in Tax School’s blog is accurate at the date of publication. You may contact taxschool@illinois.edu if you have more up-to-date, supported information and we will create an addendum.
University of Illinois Tax School is not responsible for any errors or omissions, or for the results obtained from the use of this information. All information in this site is provided “as is”, with no guarantee of completeness, accuracy, timeliness or of the results obtained from the use of this information. This blog and the information contained herein does not constitute tax client advice.
Join 2,200 of your colleagues and get notified each time a new post is added.
