For years, taxpayers who made a one-time mistake on their tax return may have qualified for penalty relief, but only if they knew to ask for it.
The IRS has now announced a major change that will make the process much easier for eligible taxpayers.
What Changed?
Beginning in Summer 2026, the IRS is replacing the traditional “First Time Abate” (FTA) program with a new process called the Automatic Exemption from Penalty (AEP). Under this new system, many taxpayers who have a history of filing and paying on time will automatically receive penalty relief without having to call the IRS, submit a request, or hire a professional to ask on their behalf.
This is a significant taxpayer-friendly change and one that many tax professionals have been advocating for over the years.
What Penalties Are Covered?
The new automatic relief applies to:
- Failure-to-File penalties
- Failure-to-Pay penalties
- Failure-to-Deposit penalties
If you qualify, the IRS will simply not assess these penalties during processing and will send a notice confirming the relief was granted.
Who Qualifies?
To be eligible, taxpayers generally must have:
- Filed required returns on time for the previous three years
- Paid any tax due during those years
- Maintained a history of compliance with IRS filing requirements
For quarterly filers, the IRS will generally look at the previous 12 consecutive quarters.
In other words, this relief is intended for taxpayers who normally do the right thing but experience an occasional slip-up.
What Returns Are Eligible?
The new AEP program applies to:
- Original tax year 2025 returns
- 2026 quarterly returns
- Future tax periods going forward
Not every tax return qualifies. Certain specialized returns, such as estate tax returns and gift tax returns, are generally excluded from the program.
Why This Matters
Historically, many taxpayers never received penalty relief simply because they didn’t know it existed.
The National Taxpayer Advocate noted that hundreds of thousands of taxpayers missed out on relief because they didn’t know to ask, couldn’t get through to the IRS, or couldn’t afford professional representation. The new automatic process helps level the playing field and ensures eligible taxpayers receive the same treatment regardless of their income or access to tax professionals.
What This Does NOT Change
This new program is great news, but there are a few important things taxpayers should understand:
You Still Must Pay Your Taxes
The IRS is providing relief from certain penalties—not from the tax itself.
If taxes are owed, they still must be paid.
Interest Still Applies
Even when penalties are removed, interest generally continues to accrue on unpaid tax balances until the balance is paid in full.
Reasonable Cause Relief Still Exists
If you do not qualify for automatic relief, you may still qualify for penalty removal under other provisions, such as reasonable cause. Situations involving serious illness, natural disasters, or other circumstances beyond your control may still warrant penalty abatement.
Agent Rae’s Take
This is one of the most taxpayer-friendly announcements we’ve seen from the IRS in recent years.
For decades, I have helped taxpayers request First Time Abatement when they qualified. The challenge was that many people never knew the option existed. Now, eligible taxpayers won’t have to jump through hoops to receive relief they were already entitled to.
That said, the best penalty relief is the penalty you never receive.
Filing on time, paying on time, and having a proactive tax strategy remain the best ways to avoid unnecessary IRS notices, penalties, and stress.
If you’ve received an IRS notice or believe penalties have been assessed incorrectly, don’t assume you have to pay them. There may be options available to reduce or eliminate those charges.
Need help reviewing an IRS notice or determining whether you qualify for penalty relief? Schedule a consultation and let’s review your situation together.
Agent Rae Huntley, EA
Rae’s Accounting, LLC
Saving Taxes One Strategy at a Time
