The Internal Revenue Service announced a major shift in its penalty relief process, replacing the long-standing First Time Abate (FTA) program with a new system that automatically grants relief to eligible taxpayers.
Under the new Automatic Exemption from Penalty (AEP), the IRS will proactively waive certain penalties for taxpayers with a consistent history of timely filing and payment. The change is intended to reduce administrative burden and eliminate the need for eligible taxpayers to request relief that has historically been routinely granted.
AEP is expected to launch in summer 2026 and will apply to original returns beginning with tax year 2025, as well as quarterly returns starting in 2026 and beyond.
How the new system works
Taxpayers will qualify for AEP if they have demonstrated compliance over the prior three years, or 12 consecutive quarters for quarterly filers. If eligible, the IRS will automatically suppress penalties during return processing.
- Failure to file
- Failure to pay
- Failure to deposit
No action is required from taxpayers to receive this relief. The IRS will apply the exemption automatically and issue a notice confirming that penalties were not assessed.
Not all returns qualify. Certain filings, such as estate and gift tax returns (Forms 706 and 709), and other infrequent or transaction-based filings, are generally excluded.
Transition away from First Time Abate
The IRS will begin phasing out First Time Abate during the summer of 2026. During this transition period, some taxpayers who qualify for relief may still receive penalty notices for tax year 2025 or 2026 quarterly returns. In those cases, taxpayers can still request FTA.
Beginning Jan. 1, 2027, AEP will fully replace First Time Abate for eligible returns. Find more information on the IRS’s Administrative penalty relief page.
What remains unchanged
Taxpayers who do not qualify for AEP still have the option to request penalty relief based on reasonable cause. The IRS will continue to review those requests on a case-by-case basis.
The agency emphasized that while AEP eliminates certain penalties, taxpayers remain responsible for paying any tax due, interest, and penalties not covered by the program.
If you have questions about this topic or other policy matters, please contact NCACPA Coordinator of Advocacy & Outreach Will Edmondson.