IRS Penalty Relief Is Becoming Automatic. Check These Details.

The IRS is moving some penalty relief onto autopilot, a change that could spare eligible taxpayers from calling or writing the agency after a first-time filing or payment mistake.

In a July 8, 2026, news release, the agency said its new Automatic Exemption from Penalty program, or AEP, will begin in summer 2026 and replace the long-running First Time Abate process for many eligible returns.

The short version: if IRS records show a taxpayer has filed and paid on time for the prior three years, the agency may stop certain penalties from being assessed in the first place. That does not erase unpaid tax or interest.

Do this first

• Do not ignore an IRS notice. AEP will come with a notice saying relief was applied.
• If you receive a penalty notice and no AEP notice, review the tax year, penalty type and payment history.
• Keep filing and paying as much as possible on time; the relief depends on a timely compliance history.
• Save copies of any IRS letters, payment confirmations and proof that a return was filed.

Who may qualify

The IRS says AEP applies to eligible original returns beginning with tax year 2025 returns, 2026 quarterly returns and future periods. For annual filers, the agency generally looks at whether the same return type was timely filed for the prior three years and whether tax due was paid. For quarterly filers, the lookback is generally 12 consecutive quarters.

The program can prevent failure-to-file, failure-to-pay and failure-to-deposit penalties from being assessed when the taxpayer qualifies. IRS guidance says commonly eligible return series include Forms 1040, 1065, 1120, 940, 941, 943, 944, 945 and CT-1.

Check these limits

AEP is not a blanket waiver. The IRS says some infrequent or transaction-specific returns, such as estate and gift tax returns, generally are not eligible. The program also does not cancel tax that is still owed, interest, or penalties outside the covered categories.

The National Taxpayer Advocate called the change a major taxpayer win, but warned that the IRS still needs to protect taxpayers who may qualify for reasonable-cause relief. That matters because reasonable-cause relief can preserve access to administrative relief for a later year.

When to get help

If a penalty notice arrives and you think the IRS missed your eligibility, contact the IRS using the number on the notice and have the notice, tax period and penalty type ready. If the issue cannot be resolved by phone, the Taxpayer Advocate says a written request or Form 843 may be needed.

For taxpayers with large penalties, business payroll deposits, repeated notices or facts that may support reasonable cause, it is worth using a trusted tax professional or a Low Income Taxpayer Clinic before assuming the automatic process covered everything.