The IRS recently announced a new Automatic Exemption from Penalty (AEP) program that will automatically provide first-time penalty relief to eligible taxpayers. The initiative is designed to simplify the process by eliminating the need for many taxpayers to request relief.
Under the new program, eligible individuals and businesses generally qualify if they have not received a penalty during the previous three years (or 12 consecutive quarters for quarterly returns).
Automatic Exemption from Penalty replaces First-Time Abate
The Automatic Exemption from Penalty (AEP) will replace the IRS’s long-standing First-Time Abate (FTA) administrative relief program. The goal is to make penalty relief more accessible and reduce the number of taxpayers who miss out simply because they never request it.
Millions qualify, but few request relief
For the 2025 tax year, about 220,000 taxpayers requested first-time penalty relief. However, more than 1.5 million taxpayers actually qualified, according to the National Taxpayer Advocate.
When the automatic penalty relief begins
The IRS expects to begin rolling out the AEP program this summer. It will apply to eligible 2025 annual tax returns, 2026 quarterly tax returns, and future tax periods.
Taxpayers must still meet the eligibility requirements. The program can provide relief from penalties for:
- Failure to file
- Failure to pay
- Failure to deposit
Some tax returns are not eligible
Eligible taxpayers will not need to take any action to receive automatic relief. Instead, the IRS will send a notice explaining the penalty abatement.
However, not every return qualifies. According to the IRS, the following are not eligible:
- Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return
- Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return
Don’t wait if you qualify now
If you believe you qualify for First-Time Penalty Abatement before the automatic AEP rollout applies to your return, it’s best to contact the IRS and request relief rather than wait.
Taxpayers can call the IRS at 800-829-1040 to request first-time penalty relief if they are currently eligible.
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