{"id":84216,"date":"2026-08-12T08:00:00","date_gmt":"2026-08-12T13:00:00","guid":{"rendered":"https:\/\/taxprocenter.proconnect.intuit.com\/?p=84216"},"modified":"2026-08-19T09:13:58","modified_gmt":"2026-08-19T14:13:58","slug":"irs-penalty-abatement-made-simple-new-automatic-exemption","status":"publish","type":"post","link":"https:\/\/accountants.intuit.com\/taxprocenter\/tax-law-and-news\/irs-penalty-abatement-made-simple-new-automatic-exemption\/","title":{"rendered":"IRS penalty abatement: new automatic exemption"},"content":{"rendered":"\n

On July 8, 2026, the IRS replaced the First Time Abate penalty relief program with a new Automatic Exemption from Penalty (AEP) system. This system automatically awards taxpayers with penalty relief if they are current on their tax filings and payments for either the prior three years or 12 consecutive quarters for quarterly returns.<\/p>\n\n\n\n

The relevant penalties that this program applies to are Failure to File, Failure to Pay, and Failure to Deposit, the same as the previous program. Eligible taxpayers will automatically get penalty relief through the AEP system and will receive a notice confirming the relief was applied. Tax due plus any applicable interest must still be paid regardless of penalty relief received. Only certain types of returns will be eligible for AEP; examples of returns that will not be eligible are informational forms and forms filed only for certain situations, such as Estate and Gift Tax.<\/p>\n\n\n\n

\u201cAutomatic Exemption from Penalty reflects the IRS\u2019s commitment to making the payment of taxes owed simpler and more consistent,\u201d said Frank J. Bisignano, chief executive officer of the IRS and commissioner of the Social Security Administration. \u201cBy automatically applying penalty relief, the IRS recognizes that taxpayers who historically pay on time should not have to make a formal request for relief that is routinely granted.\u201d<\/p>\n\n\n\n

The AEP program is already in place for tax years 2025 and 2026, and will completely replace First Time Abate for tax returns that are due on or after Jan. 1, 2027. For tax preparers, this program will simplify their post-tax season IRS representation workload by automating the most common and easiest penalty abatement request processes. This new program is a win for taxpayer rights, as well as a resource conservation move for taxpayer representative CPAs\/EAs and the IRS. Ideally this will also free up IRS phone lines and mailboxes for more substantive issues and questions. <\/p>\n\n\n\n

For those who do not qualify for AEP due to a lack of perfect past compliance, there are still routes to penalty relief based on reasonable cause. Reasonable causes can include acting in a responsible manner by requesting applicable extensions, and attempting to fix issues and failures. Taxpayers will need a mitigating factor such as being a first-time filer of this particular form, a good compliance history, negligent actions of another person, including an IRS agent, lack of access to relevant records, or economic hardship.<\/p>\n\n\n\n

Tax practitioners should still be prepared to request First Time Abate until Jan. 1, 2027 for taxpayers who receive penalty notices. A lack of IRS notice that AEP was applied means that the taxpayer still needs to request penalty relief manually. In addition, for clients who are ineligible for AEP, tax practitioners should be prepared to look at every applicable reasonable cause fact and document to ensure that the taxpayer can seek relief if they have an eligible fact pattern.<\/p>\n\n\n\n

Taxpayers who receive a penalty notice for 2025 and 2026 tax or quarterly returns must still go through the original process to request First Time Abate. Tax preparers assisting with penalty abatement work on the taxpayers\u2019 behalf should be prepared to have the following as documentation: <\/p>\n\n\n\n