IRS Automatic Exemption From Penalty (AEP): 2026 Guide
Last reviewed by Calculus Tax in-house Settlement Officer
The Automatic Exemption from Penalty (AEP) is new IRS relief that begins in summer 2026. If you file or pay late but have a history of timely compliance over the prior three years, the IRS will not assess failure-to-file, failure-to-pay, or failure-to-deposit penalties. You do not have to ask for it.
Quick answer
The Automatic Exemption from Penalty (AEP) is IRS relief starting in summer 2026. If you file or pay late on a 2025 or later return but filed and paid on time for the prior three years, the IRS won't assess failure-to-file, failure-to-pay, or failure-to-deposit penalties. It is automatic: you get a letter, and no request is needed.
| Starts | Summer 2026 |
|---|---|
| Returns covered | 2025 tax year returns and 2026 quarterly returns, and later |
| Forms | 1040, 1065, 1120, 940, 941, 943, 944, 945, CT-1 |
| History test | Same return type timely filed and paid for the prior 3 years (or 12 quarters), with no penalties other than the estimated tax penalty |
| Penalties covered | Failure to file, failure to pay, failure to deposit |
| Action needed | None; the IRS sends a letter when AEP is applied |
What Is the Automatic Exemption From Penalty?
AEP is an IRS administrative relief that replaces the request-based First Time Abate process for newer returns. Under First Time Abate, the IRS assesses a penalty and later removes it if you ask. Under AEP, the IRS checks your compliance history when your original return finishes processing and, if you qualify, never assesses the penalty at all.
Who Qualifies for AEP
You need a timely compliance history. Per the IRS, that means the same type of return was filed on time for the prior three years (or 12 consecutive quarters for quarterly filers), and either no penalty other than the estimated tax penalty was assessed, or any penalty was later removed for reasonable cause or IRS error. Businesses also cannot have had the failure-to-deposit penalty waived four or more times in that period or charged for avoiding the Electronic Federal Tax Payment System.
Which Returns and Years Are Covered
AEP applies to Forms 1040, 1065, and 1120; employment and withholding returns on Forms 940, 941, 943, 944, and 945; and Form CT-1. It begins with 2025 tax year returns and 2026 quarterly returns, and applies to all later years and quarters.
Which Penalties It Covers
AEP covers the failure-to-file penalty (IRC 6651(a)(1), and the partnership and S corporation versions), the failure-to-pay penalty (IRC 6651(a)(2) and (a)(3)), and the failure-to-deposit penalty (IRC 6656). These are the same penalties covered by First Time Abate.
How AEP Differs From First Time Abate
First Time Abate is not automatic: you must contact the IRS, the penalty is assessed first and then removed, and the failure-to-pay penalty can keep accruing until the tax is paid. AEP is automatic, no penalty is assessed, and the failure-to-pay penalty does not accrue on the unpaid tax. First Time Abate still applies to 2024 and earlier years, and to eligible 2025 returns and 2026 quarterly returns that AEP did not consider.
How You Will Know It Was Applied
When AEP is applied, the IRS sends a letter explaining that even though you filed late, paid late, or missed a deposit, the penalties were not assessed because of your history of timely compliance. You do not need to contact the IRS or respond. If you receive a notice showing an assessed penalty but believe you should have qualified, contact the IRS at the number on the notice.
What AEP Does Not Cover
You still owe any unpaid tax, interest, and penalties that AEP does not cover, such as accuracy-related penalties. AEP and First Time Abate are not available for event-based returns filed once or infrequently, the Daily Delinquency Penalty, or information reporting that depends on another filing. If you do not qualify, you can still request penalty relief based on reasonable cause.
Help With IRS Penalties in Burbank and Los Angeles
Calculus Tax reviews your IRS account transcripts with Brevitax to see which penalties were assessed and which relief, such as AEP, First Time Abate, or reasonable cause, may apply, and our in-house Settlement Officer reviews the plan. If you are also behind on filing, see the unfiled returns guide or contact us.
Frequently Asked Questions
Do I need to request the Automatic Exemption From Penalty?
No. The IRS applies AEP automatically when your original return finishes processing and sends a letter when it does. You do not need to respond.
Does AEP apply to my 2024 return?
No. AEP starts with 2025 tax year returns and 2026 quarterly returns. For 2024 and earlier, you can still request First Time Abate.
Does AEP apply to businesses?
Yes. Forms 1065 and 1120 and employment returns such as Form 941 are eligible, with extra requirements about prior failure-to-deposit waivers and EFTPS.
Do I still owe the tax and interest?
Yes. AEP only stops certain penalties from being assessed. You remain liable for unpaid tax, interest, and any other penalties.
What if I got a penalty notice but think I qualify for AEP?
Contact the IRS at the number on the notice. The IRS says to reach out if you received a notice showing an assessed penalty but believe you should have qualified.
Is First Time Abate going away?
The IRS says First Time Abate is transitioning to AEP. FTA still applies to earlier years and to eligible returns AEP did not consider.
What can change the answer
Notice type, issue date, filing history, account status, deadlines, and current agency procedures can change the available next step. Bring the complete notice and account records to a qualified review.
Tax rules and collection procedures can change and depend on the account. Federal claims should be checked against current IRS guidance; California claims should be checked against the California Franchise Tax Board. See our editorial methodology for sourcing and update standards.
Results depend on your facts and on IRS or state decisions. Calculus Tax, Inc. is not affiliated with the IRS or any government agency.
When professional help may make sense
Calculus Tax, Inc. can review notices, organize financial information, explain available paths, and communicate with the IRS or California agencies when representation is appropriate. The right next step depends on your facts, deadlines, filing history, and ability to pay.
We are based in Burbank and serve clients in Burbank and throughout Los Angeles County. See our local service-area pages for location-specific information.
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