The IRS announced on July 8, 2026, a new systemic administrative relief program called the Automatic Exemption from Penalty, or AEP. AEP will replace the long standing First Time Abate (FTA) administrative relief that practitioners have relied on for years. The change is expected to begin rolling out in summer 2026 and represents a meaningful operational shift in how compliant taxpayers experience penalty assessment.
IRS CEO Frank J. Bisignano framed the change as a burden reduction move: taxpayers who historically pay on time should not have to formally request relief that is routinely granted.
How AEP works
AEP applies to eligible original returns beginning with tax year 2025 returns and 2026 quarterly returns, and to future tax periods. To qualify, a taxpayer must have a history of timely filing the return and paying any tax due:
For annual returns, the lookback is the three prior years.
For quarterly returns, the lookback is 12 consecutive quarters.
When a taxpayer qualifies, the IRS will not assess the following penalties during processing:
Failure to file (IRC Section 6651(a)(1))
Failure to pay (IRC Section 6651(a)(2) and (a)(3))
Failure to deposit (IRC Section 6656)
Taxpayers do not need to file a request. If eligible, the IRS applies AEP automatically and issues a notice confirming that the relief was granted.
Which returns are not covered
Not every return is eligible. The release specifically calls out that information returns and returns filed only in response to specific transactions or infrequent events are generally not eligible. Two examples the IRS names directly:
Form 706, U.S. Estate (and Generation Skipping Transfer) Tax Return
Form 709, U.S. Gift (and Generation Skipping Transfer) Tax Return
Estate and gift tax practitioners should not expect AEP to apply to their 706 and 709 filings. Reasonable cause and other statutory relief pathways remain the operative tools for those returns.
The First Time Abate phase out
First Time Abate is being retired, but not overnight. The IRS will phase out FTA during summer 2026 and transition to AEP for eligible returns with original due dates on or after January 1, 2027. During the transition:
Some qualifying taxpayers may still receive penalty notices for eligible tax year 2025 and 2026 quarterly returns even when they meet the AEP criteria. In those cases, the taxpayer (or the practitioner on their behalf) can still contact the IRS and request First Time Abate.
For eligible returns with original due dates on or after January 1, 2027, AEP is the pathway. FTA is no longer available for those returns.
For non eligible returns and non qualifying taxpayers, reasonable cause relief under IRC Section 6651(a) and the statutory exceptions in the regulations remain available. The relief request process for reasonable cause continues to run through the standard channels, and the IRS will notify the taxpayer of the outcome.
Why this matters for tax pros
Six practice level takeaways.
First, remove FTA from the routine call script for eligible clients going forward. If a client with a clean three year history receives a failure to file, failure to pay, or failure to deposit penalty notice on a covered return with an original due date on or after January 1, 2027, the answer is not “call and request FTA.” The system should already have applied AEP, and if it did not, the fix is different from an FTA request. Watch for IRS guidance on the exception handling channel.
Second, during the transition (summer 2026 through year end 2026), continue to request FTA the traditional way for TY 2025 and 2026 quarterly returns when the notice arrives despite eligibility. This is a real workflow issue for practitioners. Systemic rollouts of this scale generate false negatives, and the IRS is telling you plainly to expect some qualifying taxpayers to still get penalty notices during transition. Build a review queue.
Third, track the three year (or 12 quarter) compliance history at the client onboarding stage. Prior compliance history is now the trigger for automatic relief, and firms that already run a clean compliance history review at intake will find AEP produces cleaner outcomes without practitioner intervention. Firms that do not run that intake review should build it now.
Fourth, calendar the January 1, 2027 hard cutoff. Returns with original due dates on or after that date lose FTA as an option. Any client relief strategy that was planning to rely on FTA for a late filed or late paid return with a due date crossing that line needs to be re evaluated. If a good FTA candidate has an original due date coming up in December 2026, that filing behavior takes on different weight than if the due date lands in January 2027 or later.
Fifth, brief your estate and gift practice group separately. Form 706 and Form 709 are outside AEP by name. The relief options for those returns remain reasonable cause (typically with an affidavit and supporting documentation), the statutory exception for reliance on qualified professional advice, and, where applicable, judicial doctrines. If your firm handles 706 or 709 filings, do not let the AEP messaging create false comfort about penalty exposure on those returns.
Sixth, remember that AEP prevents assessment; it does not eliminate the underlying tax or interest. Clients who are relieved of failure to file, failure to pay, or failure to deposit penalties are still responsible for the tax owed and for interest that accrued during the period of delinquency. The client conversation should be framed accordingly, because a “penalty free” outcome can otherwise be misread as a “problem solved” outcome.
A note on the legal posture
AEP is administrative relief, not a statutory bar. The IRS is choosing to apply penalty relief systemically as an exercise of its discretion under the penalty provisions of the Code, similar in nature to the discretion the agency has long applied through FTA. The IRS retains authority to revise, narrow, or discontinue the program in the future. Practitioners should not treat AEP as a permanent statutory shield when planning client filing behavior. Timely filing and timely payment remain the correct posture. AEP is a safety net for the occasional miss, not a licensing framework for missed deadlines.
THE TTR TAKE
The IRS just quietly ended one of the most called about administrative reliefs in the profession and replaced it with a systemic version. If you have a compliant client base, AEP is a real time saver. But watch the transition period carefully, brief your estate and gift group separately, and do not let clients hear “automatic” as “optional.”
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Direct link to the official Internal Revenue Service announcement.