Updated Aug. 13, 2026. IRS automatic penalty relief is the new process the agency is using to help certain taxpayers with a history of filing and paying on time. The IRS calls this relief Automatic Exemption from Penalty, or AEP. The relief is applied automatically when the return qualifies, but some taxpayers may still receive penalty notices during the transition from First Time Abate.
For broader guidance, see our IRS notices and alerts guide before you review the new penalty relief rules. This IRS automatic penalty relief update adds the current AEP details.
The short version is this: AEP can prevent certain failure to file, failure to pay, and failure to deposit penalties. It does not erase tax or interest, and it does not cover every return or every penalty.
What Is The IRS Automatic Penalty Relief Change?
On July 8, 2026, the IRS announced that AEP would replace the long standing First Time Abate process for eligible returns with original due dates on or after Jan. 1, 2027. An IRS Tax Tip published July 30 added details about eligibility and the transition.
Under AEP, the IRS checks whether a taxpayer had timely filing and payment history in the previous three years. Quarterly filers generally need 12 consecutive quarters of timely compliance. No application or separate request is needed when the IRS applies AEP.
When relief is granted, the IRS says it will send a notice explaining that the penalty was not assessed because of the taxpayer’s compliance history. Keep that notice with your tax records.
Which IRS Penalties Can AEP Cover?
AEP may prevent these penalties during original return processing:
| Penalty area | What it generally relates to | What to check |
|---|---|---|
| Failure to file | A return was filed after its due date | Return type, due date, and prior filing record |
| Failure to pay | Tax was paid after the due date | Tax balance, payment date, and interest |
| Failure to deposit | A required tax deposit was late | Deposit schedule and payment records |
AEP does not apply to every penalty. The IRS says it generally does not cover daily delinquency penalties, accuracy related penalties, information return penalties, or other penalties outside the program.
Who May Qualify For AEP?
AEP applies to eligible original returns beginning with tax year 2025, eligible 2026 quarterly returns, and future tax periods. The IRS administrative penalty relief page lists several return series that may be considered, including Forms 1040, 1065, 1120, 940, 941, 943, 944, 945, and CT 1.
Eligibility depends on the return, the applicable period, and the taxpayer’s history. A taxpayer who filed late or paid late does not automatically qualify just because the delay was unusual. The prior compliance requirement still matters.
Some returns generally do not qualify, including information returns and returns filed only because of a specific transaction or infrequent event. The IRS gives Forms 706 and 709 as examples.
Why You Might Still Get An IRS Penalty Notice
The transition is not immediate for every return. The IRS says some qualifying taxpayers may still receive penalty notices for eligible tax year 2025 and 2026 quarterly returns.
For those periods, First Time Abate may still be available, but the taxpayer may need to contact the IRS and request it. That is different from AEP, which is designed to apply automatically when the return qualifies.
If you receive a notice showing an assessed penalty, read the notice carefully. Check the tax period, return type, penalty description, and response instructions. Do not assume the notice is wrong, but do not assume the amount is final without checking the IRS guidance that matches your return.
What AEP Does Not Cancel
AEP is penalty relief, not a tax cancellation. You remain responsible for the tax owed and any interest due. Penalties outside the program may also remain.
The IRS has also said taxpayers should continue to file returns, pay tax, and make deposits by the due date. AEP is not permission to file late. It is an administrative relief process that may help eligible taxpayers when a qualifying compliance issue occurs.
What To Do With IRS Automatic Penalty Relief Notices
- Keep every page of the notice and the envelope.
- Write down the notice number, tax period, amount, and response date.
- Compare the notice with your return, payment confirmations, and deposit records.
- Search the notice number on the official IRS notice guidance.
- Review the IRS administrative penalty relief page for the current AEP and First Time Abate rules.
- Contact the IRS through the method printed on the notice if you believe AEP or First Time Abate should apply.
Use official IRS contact details. An unexpected email, text message, or social media message is not a substitute for a mailed notice or an IRS account check. Do not send tax records or payment information through an unfamiliar link.
Automatic Penalty Relief And Small Businesses
Small business owners and payroll administrators should pay close attention to failure to deposit rules. AEP may be relevant to certain eligible payroll return series, but the compliance history and return requirements still apply.
Keep copies of filed returns, payment confirmations, deposit records, and IRS notices. A clean record makes it easier to explain the situation if a penalty appears during the transition.
Frequently Asked Questions
Is IRS automatic penalty relief available to everyone?
No. AEP is limited to eligible returns, taxpayers who meet the applicable compliance history requirements, and specific penalty types.
Do I need to apply for IRS automatic penalty relief?
No. When the IRS determines that IRS automatic penalty relief applies, it is automatic. The IRS says it will send a notice explaining the relief.
Can I still request First Time Abate?
During the transition, some eligible periods may still use First Time Abate. The IRS says taxpayers may need to contact the agency and request it for those periods.
Does AEP remove the tax I owe?
No. AEP concerns certain penalties. Tax and interest can still be due, and other penalties may still apply.
What if I receive a penalty notice even though I think I qualify?
Read the notice, confirm the return period and penalty type, then contact the IRS through the instructions on the notice. Keep proof of your response.
Final Thoughts: IRS Automatic Penalty Relief
The new IRS automatic penalty relief process may reduce paperwork for taxpayers with a strong record of timely compliance. The transition also means a penalty notice may require closer attention, especially for 2025 returns and 2026 quarterly returns.
Check the exact return period, penalty, and response date. Use the IRS source pages linked above, keep your records, and do not confuse penalty relief with permission to delay filing or payment.
Bookmark this page for updates, and check the official IRS source date before acting on a notice.
Sources And Further Reading
- IRS Tax Tip 2026 59, eligible taxpayers may receive automatic penalty relief
- IRS fact sheet, Automatic Exemption from Penalty
- IRS announcement from July 8, 2026
- Taxpayer Advocate Service analysis
