IRS Announces New Process for Penalty Relief
In July 2026, the IRS announced a new automatic process designed to provide penalty relief for taxpayers who have a history of timely filings and payments, thereby reducing the need for them to request assistance from the IRS. The long-standing First Time Abate administrative relief will soon be replaced by the Automatic Exemption from Penalty (AEP) process. The new process aims to simplify and make more consistent the tax-paying process, as well as lessen the burden on taxpayers who have a timely compliance history, by cutting out the step of making a formal request for relief that is generally granted anyway.
The AEP, a new systematic administrative relief program, is scheduled to begin this summer. It will apply to eligible original returns beginning with tax year 2025 and 2026 quarterly returns. Taxpayers can qualify if they have a history of timely filing returns and paying any owed tax due in the three prior years (or 12 consecutive quarters for quarterly returns). If a taxpayer qualifies, they will not be assessed penalties assessed during processing for failure to file, failure to pay, or failure to deposit. Taxpayers do not need to take any action in order to receive this relief. If they are eligible, the IRS will apply AEP and send a notice confirming that the relief was granted. Not all returns will qualify for AEP, however. Information returns and returns filed in response to specific transactions or infrequent events, for instance, generally will not be eligible.
First Time Abate has been the most common form of administrative penalty relief for quite some time, and it allowed taxpayers with timely filing and payment histories to formally request the removal or abatement of certain penalties. The IRS will begin phasing out First Time Abate and transition to AEP during summer 2026. During this time, some taxpayers may still receive penalty notices for 2025 and quarterly 2026 returns; they should contact the IRS to request First Time Abate if they believe they qualify. AEP is expected to replace First Time Abate for eligible returns with original due dates on or after January 1, 2027.
Even if a taxpayer doesn’t qualify for AEP, they can still request penalty relief based on reasonable cause. Those requests will be reviewed by the IRS and the taxpayer will be notified of the outcome. It is also important to note that while AEP will prevent the assessment of certain penalties, taxpayers will still be responsible for any tax and interest still due, as well as penalties not subject to relief.
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