IRS Announces New Automatic Exemption from Penalty Program

On July 8, 2026, the Internal Revenue Service announced a new automatic process to provide penalty relief for taxpayers with a history of filing and paying on time. Various forms of relief have existed for a long time, but taxpayers had to request help from the IRS in a phone call or  letter. The new automatic process reduces the need for taxpayers to contact the IRS with requests for assistance. IRS Chief Executive Officer, Frank J. Bisignano said, “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.”

The new Automatic Exemption from Penalty (AEP) program is expected to begin this summer. It will apply to eligible original returns beginning with tax year 2025 and 2026 quarterly returns and continue through future tax periods.

To qualify for AEP, taxpayers must have a three-year history of filing tax returns and paying any tax due on time. Taxpayers do not need to take any action; the IRS will apply the AEP and send a notice confirming that the relief was granted. If you receive such a notice, you do not need to contact or reply to the IRS.

The AEP applies to penalties that have been assessed for:

• Failure to file a tax return on time
• Failure to pay on time
• Failure to make a tax deposit on time

While AEP can remove these penalties, taxpayers must still pay any tax and interest due.

Not all tax returns qualify for AEP. Taxpayers filing individual, partnership, or corporation returns are eligible (1040, 1065, 1120), as are filers of the employment tax return series (940, 941, 943, 944, and 945). Trusts, estates, and nonprofit organizations do not qualify.

The most common form of penalty relief for taxpayers in the past has been the First Time Abate program. This program will be phased out and replaced with AEP during the summer of 2026.

Taxpayers who do not qualify for AEP may still request penalty relief if they have a reasonable cause for late filing or payment. At R&A, our tax professionals frequently negotiate with the IRS to reduce or eliminate tax penalties for our clients through reasonable cause procedures. Feel free to give us a call if you have questions or if we can help with other IRS issues.