IRS Replaces First-Time Abate With Automatic Penalty Relief

On July 8, 2026, the IRS announced a new automatic way to give penalty relief to taxpayers with a history of filing and paying on time (IRS news release IR-2026-83). The program, called the Automatic Exemption from Penalty (AEP), replaces First Time Abate. That was the IRS's most common form of administrative penalty relief, but taxpayers had to ask for it.

How AEP works

Under First Time Abate, the IRS first charged the penalty, and you then had to call or write to have it removed. AEP works the other way around. When your original return finishes processing, the IRS checks your history. If you qualify, the penalty is never assessed, and the IRS sends a notice saying relief was applied. You don't need to contact the IRS or respond to that notice (IRS administrative penalty relief page).

Penalties covered:

• Failure to file, including the late-filing penalties for partnership and S corporation returns.
• Failure to pay, for tax shown on a return or tax assessed later and not paid by the date on a notice.
• Failure to deposit, for payroll and other deposits that are late, short or made the wrong way.

Returns covered: Forms 1040, 1065 and 1120; employment tax Forms 940, 941, 943, 944 and 945; and Form CT-1.

Start dates: AEP applies to 2025 tax year returns, to 2026 quarterly returns and to all later periods.

Who qualifies

You need a timely compliance history. For the same type of return, that means:

1. You filed on time for the prior three years, or 12 consecutive quarters for quarterly returns.
2. No penalty was assessed in that period, other than the estimated tax penalty, or any penalty was later removed for reasonable cause or IRS error.
3. For businesses, the IRS didn't waive a failure-to-deposit penalty four or more times in that period, and no deposit penalty was charged for not using EFTPS when required.

AEP doesn't cover returns filed only once or rarely because of a specific event, such as estate and gift tax returns. It also doesn't cover the daily delinquency penalty or information returns that depend on another filing.

What you still owe

AEP stops certain penalties. It doesn't erase tax. You still owe any unpaid tax, interest, and any penalty AEP doesn't cover. One real benefit: the IRS says that under AEP the failure-to-pay penalty doesn't build up on unpaid tax for a qualifying return, while under First Time Abate it could keep growing until the tax was paid.

During the transition

The IRS says it began phasing out First Time Abate in summer 2026. While the change rolls out, some qualifying taxpayers may still receive penalty notices for 2025 returns or 2026 quarterly returns. If that happens to you, the IRS says you can contact it and request First Time Abate. AEP fully replaces First Time Abate for eligible returns with original due dates on or after Jan. 1, 2027.

If you don't qualify

You can still ask the IRS to remove a penalty for reasonable cause, such as a death or serious illness in the family, a fire or natural disaster, or being unable to get records, by explaining what happened and showing you acted responsibly. When a penalty is removed, the IRS says the interest charged on that penalty is reduced or removed automatically. See our guides to IRS penalty relief and IRS interest. If a penalty is part of a bill such as a CP14, you can raise relief while you sort out payment.

IRSV.com is an independent guide and is not affiliated with the IRS. This page is general information, not tax or legal advice. Rules change; confirm details on IRS.gov or with a tax professional. Found an error? Tell us.