On July 8, 2026, the IRS announced a new Automatic Exemption from Penalty (AEP) program. The change is designed to make life simpler for taxpayers who have a history of filing and paying on time.
Instead of asking the IRS to waive a penalty after the fact, eligible taxpayers will get the relief automatically — no phone call, no form, no waiting.
What Is Changing
For years, the most common way to remove certain IRS penalties was through First Time Abate, a program that required taxpayers (or their preparers) to ask for relief after a penalty was assessed.
The new AEP program replaces First Time Abate with an automatic process:
- The IRS checks your compliance history on its own.
- If you qualify, the penalty relief is applied automatically.
- You receive a notice confirming that the relief was granted.
You do not need to take any action to receive it.
Who Qualifies
The IRS says taxpayers generally qualify if they have a history of timely filing and paying. AEP applies to:
- Eligible original returns starting with tax year 2025
- 2026 quarterly returns
- Future tax periods on eligible returns
Not every return is eligible. For example, the IRS notes that information returns and returns tied only to specific or infrequent events — such as estate or gift tax returns — generally do not qualify.
When It Starts
- AEP is expected to begin during the summer of 2026.
- The IRS will phase out First Time Abate over the same period.
- For eligible returns with an original due date on or after January 1, 2027, AEP replaces First Time Abate.
- During the transition, some qualifying taxpayers may still receive penalty notices for eligible tax year 2025 and 2026 quarterly returns. If you believe you qualify during the transition, you can still contact the IRS to request relief.
Why It Matters
Penalties for late filing or late payment can add up quickly, and until now getting them removed often meant spending time on hold or writing a letter. For a small business owner filing Schedule C, an automatic process means:
- Less paperwork. You do not have to request relief for eligible penalties.
- Faster resolution. The IRS applies the exemption on its own and sends a confirmation.
- Less stress during a busy quarter. If you normally pay on time and a slip happens, relief can arrive without you chasing it.
Good records make good tax outcomes. Simple-C helps keep your Schedule C income and expenses organized so you can file accurately and on time — the exact compliance history the new AEP program rewards.
This article provides general information, not tax advice. Penalty relief rules and eligibility can change. Confirm the current details on IRS.gov.