A new program called Automatic Exemption from Penalty quietly replaced the old "First Time Abate" process this month. No form, no phone call — here's who it covers.
On July 8, the IRS announced a new process called the Automatic Exemption from Penalty, or AEP. If you've ever paid a failure-to-file or failure-to-pay penalty without questioning it — because calling the IRS to ask for relief felt like more hassle than the penalty was worth — this is worth five minutes of your attention. The IRS is no longer waiting for you to ask.
For years, the IRS has had a policy called First Time Abate, which let taxpayers with a clean compliance history request relief from certain penalties — but only if you knew to ask. AEP replaces that with something automatic. If you qualify, the IRS applies the relief itself during processing and sends you a notice confirming it. No application, no form, no phone call.
The program covers three penalty types: failure to file, failure to pay, and failure to deposit. It applies to eligible tax year 2025 returns and 2026 quarterly returns, with more filing periods rolling in as it phases in fully for returns due on or after January 1, 2027.
You need a history of filing on time and paying what you owed for the three prior years — or, if you're talking about quarterly returns like payroll deposits, 12 consecutive quarters of on-time compliance. In other words, this rewards a track record, not a one-time scramble. If this year's the first time something slipped, and your history before that was clean, you're the kind of taxpayer this was built for.
If you've gotten a penalty notice recently and your filing history has otherwise been solid, hold off on paying it immediately or calling to negotiate — check whether a follow-up notice showing automatic relief is already on its way. You can also pull your IRS online account transcript to see your payment and filing history for the last three years, which is the same window the IRS is checking behind the scenes.
AEP doesn't apply to everything. Information returns, estate tax returns (Form 706), gift tax returns (Form 709), and certain returns tied to one-off transactions are outside its scope for now. And because the full transition away from First Time Abate doesn't finish until 2027, there's some overlap in how relief gets processed in the meantime. If you're not sure whether a specific penalty on your account qualifies, that's genuinely a "it depends on your file" situation rather than something to guess at — the details of your filing history matter more than any general rule.
Penalties are one of those things that are easy to just pay and move on from, even when you didn't have to. If you want a calmer, more complete look at where your tax picture actually stands — not just this one program, but the whole year — The Calm & Confident Tax Prep Kit walks you through it at your own pace. Or start smaller with the free Mid-Year Tax Reset and see where you stand in one sitting.
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