IRS Begins Transition From First Time Abatement to Automatic Penalty Relief

The IRS is transitioning from its long-standing First Time Abate (FTA) program to a new Automatic Exemption from Penalty (AEP) program designed to provide penalty relief automatically to taxpayers with a history of timely compliance.

AEP is expected to begin in summer 2026 and will apply to eligible 2025 tax-year returns and 2026 quarterly returns, as well as future eligible tax periods. For eligible original returns with due dates on or after Jan. 1, 2027, AEP will replace FTA.

Under AEP, the IRS will automatically prevent certain penalties from being assessed during original return processing when the taxpayer has timely filed returns and paid taxes due during the applicable three prior years—or, for quarterly filers, the prior 12 consecutive quarters. 

Eligible penalties include failure to file, failure to pay, and failure to deposit penalties. The IRS will notify taxpayers when AEP relief has been applied, and no separate request is required.

Not all returns and penalties qualify. AEP generally does not apply to certain infrequent or event-based filings, information returns, daily delinquency penalties, accuracy-related penalties or other penalties outside the program's scope.

What Practitioners Should Know

FTA remains relevant during the transition. Some taxpayers may continue to receive penalty notices for eligible returns while AEP is being phased in. If a taxpayer believes they qualify for relief but receives a penalty notice, practitioners should review the applicable filing period and determine whether FTA or another form of relief may be available.

AEP also does not eliminate reasonable cause relief. Taxpayers who do not qualify for AEP may still request relief based on the facts and circumstances of the situation. The IRS generally considers whether the taxpayer exercised ordinary care and prudence but was nevertheless unable to comply. Practitioners should continue to evaluate and document strong reasonable cause facts, including serious illness, natural disasters, inability to obtain records or other circumstances beyond the taxpayer's control.

During the transition, carefully review penalty notices and the applicable return period before determining the appropriate relief strategy.

Additional Resources: For current eligibility requirements and program details, visit the IRS's Administrative Penalty Relief page and Automatic Exemption from Penalty FAQs. The IRS Reasonable Cause Penalty Relief page also provides additional guidance on requesting relief.