Key Takeaways:
- AEP replaces First Time Abate, automatically checking your compliance history at filing instead of requiring you to request relief.
- The program applies to eligible returns starting with tax year 2025, and certain quarterly returns beginning in 2026.
- A clean three-year track record (12 consecutive quarters for quarterly filers) generally qualifies you for relief on failure to file, pay, or deposit penalties.
- Estate tax returns (Form 706), gift tax returns (Form 709), and certain other filings are excluded from AEP entirely.
- If a penalty notice arrives during the transition, contact the IRS about First Time Abate — and remember any underlying tax and interest is still owed.
How the IRS’s New Penalty Relief Program Actually Works
It is not uncommon to receive an IRS penalty. Even taxpayers who have a long history of staying organized with tax obligations miss deadlines and make late payments. It can happen to the best of us.
This past July, the IRS announced a new program called the Automatic Exemption from Penalty (AEP), which automatically provides relief to qualifying taxpayers with a strong compliance tax record. Here’s what to know about this new program.
What is Automatic Exemption from Penalty?
AEP is replacing a long-time IRS program called First Time Abate (FTA). Under FTA, taxpayers had to call or write to the IRS to get a penalty removed. That was assuming taxpayers even knew about the program.
Now, under AEP, the IRS automatically checks your compliance history when processing your tax returns. Specifically, it looks at whether you filed on time and paid what you owed for the three years before the return you’re filing now. There’s no need to submit an application or make a separate request.
The program applies to eligible returns beginning with tax year 2025, certain quarterly returns beginning in 2026, and future tax periods.
Who Qualifies for AEP?
Generally, you need to have a history of filing your returns and paying taxes on time for the previous three years. If you file quarterly, that means 12 straight quarters of on-time filing and payment.
Which Penalties are Covered?
AEP applies to three common penalties: failure to file, failure to pay, and failure to deposit. These cover situations like turning in your return late, missing a payment deadline, or missing a required deposit.
It doesn’t cover every IRS penalty, though. And certain returns are excluded entirely from AEP, including, for example, estate tax returns (Form 706) and gift tax returns (Form 709). These penalties may still require a proactive approach for relief.
How Does the AEP Process Work?
When the IRS processes your return, its system automatically checks your history. If you meet the requirements, the penalty won’t be added to your account. The IRS will then send you a letter explaining that you received AEP relief.
What to Do If You Receive a Penalty Notice
Never ignore a notice from the IRS, but don’t assume that the notice is correct. The IRS is still transitioning from First Time Abate to AEP, so some taxpayers who should qualify for relief may still get penalty notices. Contact the IRS and ask if you qualify for First Time Abate, which is still available during the transition. And remember that regardless of what penalties may be removed, you are still liable for any tax and interest due on the underlying bill.
Other Relief Options May Be Available
If you don’t qualify for AEP, you may not be out of options. The IRS could grant reasonable cause relief when circumstances beyond your control, like serious illness or natural disaster, prevent you from meeting your tax obligations. You can also request relief for specific situations the IRS announces, such as after major storms or emergencies.
The goal of implementing AEP is to streamline the relief process for eligible taxpayers. It doesn’t completely eliminate IRS penalties, but it gives honest and compliant taxpayers more breathing room.
