IRS Announces Automatic Penalty Relief for Eligible Taxpayers

A new IRS process will spare qualifying taxpayers from having to request certain penalty waivers, but the summer rollout leaves some returns under the existing request process.

By: John Napoletano

Published: July 8, 2026

The Internal Revenue Service (IRS) announced July 8 that it will begin automatically granting certain penalty relief to individuals and businesses with a history of filing and paying on time. Eligible taxpayers will no longer have to ask the agency to remove those penalties after receiving a bill.

The new process, called Automatic Exemption from Penalty (AEP), is scheduled to begin during summer 2026. It will prevent qualifying failure-to-file, failure-to-pay, and failure-to-deposit penalties from being assessed when an original return is processed. The IRS will send a notice confirming the relief.

Which Returns and Taxpayers Qualify?

The rollout starts with eligible original returns for tax year 2025 and quarterly returns for 2026, then continues for later periods. Covered forms include individual Form 1040, partnership Form 1065, corporate Forms 1120 and 1120-S, and several employment tax returns, including Form 941.

Eligibility depends on the taxpayer's compliance history for the same return type during the previous three years, or 12 consecutive quarters for quarterly filers. IRS procedural guidance requires the following:

• The required prior returns were filed, or IRS records show there was no filing requirement.
• The prior periods generally have no assessed penalties other than estimated tax penalties. Penalties removed for reasonable cause or IRS error can still leave a qualifying history.
• The eligible original return is filed within three years of its original due date.

Prior relief under AEP or First Time Abate does not count the same way as relief for reasonable cause or IRS error. Both spouses must meet the compliance-history requirements for a joint return. Employment tax returns have additional restrictions involving prior deposit-penalty waivers and avoidance of electronic deposit requirements.

Some Taxpayers Will Still Need to Ask

The change replaces First Time Abate (FTA), the administrative relief taxpayers traditionally requested after a penalty was assessed. The transition will take place during summer 2026, so a qualifying 2025 annual or 2026 quarterly return may still produce a penalty notice.

Taxpayers who believe they qualify should contact the Internal Revenue Service if a notice includes an eligible penalty. FTA remains available for qualifying returns that did not receive AEP consideration during the transition, as well as eligible older returns.

For eligible original returns with due dates on or after January 1, 2027, AEP will replace FTA. That date concerns the return's original due date, not simply the year printed on the form.

Tax and Interest Remain Payable

Automatic relief does not erase the underlying tax or the interest due on unpaid tax. It also does not cover every penalty. Estimated tax underpayment penalties, accuracy-related penalties, and information return penalties fall outside this program. Estate and gift tax returns, such as Forms 706 and 709, generally are not eligible.

The filing and payment penalties established by Congress remain in the tax code. AEP changes how the IRS provides administrative relief to qualifying taxpayers. It does not extend a filing deadline or excuse everyone who files late.

What to Do If Relief Does Not Apply

Taxpayers who do not qualify for automatic relief may still ask for relief based on reasonable cause. The IRS considers the circumstances, such as serious illness, a disaster, or an inability to obtain necessary records, along with the taxpayer's efforts to comply. Lack of money alone generally is not enough.

If a balance remains, pay what you can and review the available payment arrangements. Keep any penalty notice and supporting records when contacting the agency. The Internal Revenue Service explains the automatic process and request options on its administrative penalty relief page.

For individuals completing an overdue return, our Form 1040 instructions page links to recent tax-year editions. Use the form for the year being filed. Filing the return is still necessary even when the IRS may provide penalty relief.

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