Automatic Exemption from Penalty is the IRS program, announced July 8, 2026, that replaces First Time Abate by automatically suppressing failure-to-file, failure-to-pay, and failure-to-deposit penalties for taxpayers with a clean three-year compliance history, without a request.
AEP applies to eligible original returns starting with 2025 annual returns and 2026 quarterly returns, and is slated to fully replace First Time Abate for returns due on or after January 1, 2027. The IRS screens returns during processing and sends a notice confirming relief was applied.
Why it matters: during the transition, penalty notices should not be assumed to resolve themselves, and taxpayers outside AEP’s scope still rely on reasonable cause.
Read more: the AEP announcement explained.
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