IRS Automatic Exemption from Penalty Program: New Automatic Penalty Relief Begins in 2026

It isn’t often that the Internal Revenue Service (“IRS”) gives taxpayers an easy button, so when it happens, it is something to be excited about. And when that easy button applies to penalty relief? That is certainly worth celebrating. Beginning in the summer of 2026, the agency will launch the Automatic Exemption from Penalty program (“AEP”), which will eliminate the need for eligible taxpayers to request certain penalty relief on their own and allow the IRS to apply that relief automatically.

Many of us have been there: one mistake, one missed deadline, or one forgetful moment can lead to an IRS notice—and, with it, a potentially significant penalty. Prior to this new AEP program, qualified taxpayers generally had to apply through the IRS First Time Abate program (“FTA”), where they had to show a history of compliance and request relief directly from the IRS. Even then, approval could take months or longer. Without knowledge of this option and proper guidance through the process, some taxpayers were left in the dark and may have paid penalties that could otherwise have been abated.

Additionally, the old FTA program required time and resources from the IRS, further straining an already overburdened department and lengthening the time needed for penalty relief requests to be reviewed and resolved. By automatically recognizing taxpayers with a proven history of meeting their tax obligations, the IRS hopes to reduce unnecessary paperwork, improve consistency in how penalty relief is applied, and lessen the burden on both taxpayers and agency employees. This new program is representative of the IRS’s ongoing effort to modernize tax administration and improve the taxpayer experience—and the best part is that eligible taxpayers don’t even have to lift a finger!

How the New Program Works

The AEP program will apply to eligible original tax returns beginning with the 2025 tax year, as well as 2026 quarterly returns and future filing periods.

To qualify, taxpayers must demonstrate a consistent history of compliance. Generally, this means they must have filed required tax returns and paid any taxes due on time during the previous three tax years (or twelve consecutive quarters for quarterly returns).

Eligible taxpayers will automatically receive relief from several common penalties, including the following:

• Failure-to-file penalties

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

The IRS expects the AEP program to begin in summer 2026 and to fully replace the traditional FTA relief process for eligible penalties for returns with original due dates on or after January 1, 2027. During the transition period in 2026, some taxpayers who would otherwise qualify for automatic relief may still receive notices with penalty. If that happens, taxpayers who believe they qualify should contact the IRS and request relief under the traditional FTA program while the transition is underway.

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Not Every Return Qualifies

Although the new process covers many commonly filed tax returns, it is important to note that it does not apply to every filing situation.

Certain returns, such as “information returns” or returns filed only because of specific or infrequent events, generally are not eligible. Examples include Form 706 (U.S. Estate Tax Return) and Form 709 (Gift Tax Return). Taxpayers with these types of returns should continue following existing IRS penalty relief procedures if they need to request penalty relief.

What Happens If You Don’t Qualify?

Taxpayers who are not eligible for Automatic Exemption from Penalty still have options.

As before, the IRS will continue accepting requests for penalty relief based on “reasonable cause,” such as situations involving serious illness, natural disasters, or other circumstances beyond the taxpayer’s control. Each request will be reviewed individually, and the IRS will notify taxpayers of its decision.

It’s also important to remember that while AEP may eliminate certain penalties, it will not erase any taxes owed or the interest that has accrued. Taxpayers remain responsible for paying any outstanding tax balances, applicable interest, and penalties that are not covered by the program.

If you have any questions or require tax assistance, please don’t hesitate to reach out to your trusted tax advisor, HHM.

Reference

IRS, “IRS simplifies penalty relief, introduces automatic process for eligible taxpayers”: https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayer

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About the Author

Kaleb Ellis is a Senior Accountant at HHM, focusing on tax preparation, bookkeeping, payroll, and sales tax. He brings five years of progressive tax experience, including two years at a senior level. Kaleb earned his B.S. in Accounting from the University of Tennessee at Chattanooga and is a licensed CPA.