WASHINGTON, Nov. 11, 2026 — Americans who usually file and pay their federal taxes on time may no longer have to ask the Internal Revenue Service to remove certain penalties after an isolated missed deadline. Under its new Automatic Exemption from Penalty (AEP) program, the IRS checks qualifying taxpayers’ prior compliance histories and prevents certain penalties from being assessed during original return processing.
The change, announced by the IRS on July 8, 2026, began phasing in during summer 2026. For eligible original returns whose due dates fall on or after January 1, 2027, AEP replaces the agency’s longstanding First Time Abate (FTA) process. It is not a blanket forgiveness of taxes, interest or every penalty.
How automatic penalty relief works
Previously, a taxpayer who qualified for First Time Abate generally needed to contact the IRS and request that an already-assessed penalty be removed. Under AEP, the qualifying penalty is not assessed in the first place, and taxpayers do not have to file a special application or call the agency. The IRS says it will send eligible taxpayers a notice confirming that relief was applied.
The program can cover three specific penalty types:
- Failure to file: a qualifying late tax return.
- Failure to pay: a qualifying late tax payment.
- Failure to deposit: certain missed required federal tax deposits, usually affecting employers and other business filers.
These are relief categories, not permission to ignore tax deadlines. The IRS fact sheet emphasizes that the underlying filing and payment obligations remain in force.
Who qualifies under the three-year rule?
The central test is a history of timely filing the relevant return and paying any tax due for the previous three years. For taxpayers who file quarterly returns, the IRS examines 12 consecutive quarters instead. Other requirements and limitations also apply.
The IRS identifies the following return series as potentially eligible: Forms 1040, 1065 and 1120; Forms 940, 941, 943, 944 and 945; and Form CT-1. Eligible returns are considered individually under the rules; not everyone who files late will receive relief. More details are available on the IRS administrative penalty relief page.
What changes in 2027 — and what has already started?
Although the program is often described as a 2027 change, the rollout started in summer 2026 for eligible 2025 tax-year original returns and 2026 quarterly original returns, with later periods to follow. First Time Abate remains available for prior eligible periods and certain returns processed before AEP was implemented.
For eligible original returns with due dates beginning January 1, 2027, however, taxpayers will use AEP rather than First Time Abate. This includes qualifying 2026 individual income tax returns generally due in spring 2027. The National Taxpayer Advocate separately confirmed the transition.
What the new program will not forgive
AEP does not cancel the underlying tax bill. Taxpayers still owe any unpaid federal taxes, applicable interest and penalties outside the program’s narrow scope. The IRS says it does not cover accuracy-related penalties, information-return penalties, daily delinquency penalties or other excluded categories.
Some infrequent or event-based filings generally are not eligible, including Form 706 estate tax returns and Form 709 gift tax returns. An otherwise eligible taxpayer should not assume relief applies to every return or every type of charge.
Why this matters for families and small businesses
The practical shift is from a request-based process to an automatic one. Historically compliant individuals and small employers who meet the requirements may avoid a penalty bill and the additional step of seeking removal. The National Taxpayer Advocate has described the change as particularly helpful for people with limited resources to navigate tax disputes.
Taxpayers who believe a penalty should not have been assessed under AEP can contact the IRS using the information on their notice. Those who do not meet AEP rules may still qualify for penalty relief for reasonable cause or may be able to appeal an adverse determination.
Bottom line: A qualifying three-year history may now spare taxpayers from the hassle of requesting relief, but it does not eliminate the responsibility to file and pay on time.
