IRS Simplifies Penalty Relief for Taxpayers with a Strong Filing History

The IRS has announced a significant change that will make it easier for many taxpayers to receive penalty relief—without having to request it.

Beginning in summer 2026, the IRS will introduce the Automatic Exemption from Penalty (AEP), a new program that automatically grants relief to eligible taxpayers who have a history of filing and paying their taxes on time.

What's Changing?

The new AEP program replaces the long-standing First Time Abate (FTA) process for most eligible returns. Instead of contacting the IRS and requesting penalty relief, qualifying taxpayers will automatically receive it during return processing.

If you're eligible, the IRS will remove certain penalties and send a notice confirming the relief—no additional action is required.

Who Qualifies?

To qualify for Automatic Exemption from Penalty, taxpayers generally must have:

• Filed their returns on time for the previous three years (or 12 consecutive quarters for quarterly filers)
• Paid any taxes due during that period
• Filed an eligible original return for tax year 2025, a 2026 quarterly return, or a future tax year

The automatic relief applies to certain:

• Failure-to-file penalties
• Failure-to-pay penalties
• Failure-to-deposit penalties

Some returns, including estate and gift tax returns, are not eligible for the new program.

What If You Don't Qualify?

Taxpayers who don't meet the AEP requirements may still be able to request penalty relief based on reasonable cause. The IRS will continue reviewing those requests on a case-by-case basis.

It's also important to remember that this relief only applies to eligible penalties. Any tax owed, interest, or non-qualifying penalties must still be paid.

What This Means for Taxpayers

The new process is designed to reward taxpayers with a strong compliance history while reducing unnecessary paperwork and IRS requests. For many individuals and businesses, receiving penalty relief will become faster, simpler, and completely automatic.

If you've received an IRS penalty notice or have questions about whether you qualify for penalty relief, the BNA team is here to help you understand your options.