What the IRS announced
In news release IR-2026-83, the IRS said the Automatic Exemption from Penalty will replace First Time Abate, the administrative waiver that has long been its most common form of penalty relief. The IRS described AEP as a systemic process expected to begin in summer 2026.
The difference is who acts. Under First Time Abate, the penalty was assessed and you had to contact the IRS to have it removed. Under AEP, the IRS checks your record when the return finishes processing, and if you qualify the penalty is never assessed. It then sends a notice confirming that the relief was applied. You do not need to respond.
| Feature | First Time Abate | Automatic Exemption from Penalty |
|---|---|---|
| Which periods | Tax years before 2025 and quarters before 2026, plus 2025 and 2026 returns not considered for AEP during the transition | 2025 tax year returns and 2026 quarterly returns, and all later periods |
| How relief is granted | Not automatic | Automatic |
| What you have to do | Contact the IRS by phone or in writing | Nothing |
| Penalty assessment | Assessed first, then removed | Never assessed |
| Failure-to-pay penalty on tax still unpaid | May continue to accrue until the tax is paid | Does not accrue and is not assessed on the unpaid tax |
Who qualifies
The test is your compliance history, not the reason you were late. You do not have to explain anything.
- You filed the same type of return timely for the prior three years, or the prior 12 consecutive quarters for quarterly returns
- You paid the tax due for those periods
- No penalty was assessed for those periods, other than an estimated tax penalty, or a penalty was assessed and later removed for reasonable cause or IRS error
- For business returns: the IRS did not waive a failure-to-deposit penalty four or more times in that period, and the penalty was not charged for avoiding the Electronic Federal Tax Payment System
Which returns and penalties are covered
AEP covers three penalties, regardless of amount: failure to file, failure to pay and failure to deposit. It applies to the return series the IRS lists, and it excludes returns that are filed once or only when a particular event happens.
| Eligible return series | Not eligible |
|---|---|
| Form 1040, individual income tax | Form 706, estate tax |
| Form 1065, partnership | Form 709, gift tax |
| Form 1120, corporation | Other returns filed once or infrequently |
| Forms 940, 941, 943, 944 and 945, employment taxes | Information returns that depend on another filing |
| Form CT-1, railroad retirement tax | The daily delinquency penalty |
AEP does not cover the estimated tax penalty or accuracy-related penalties. It is limited to the three penalties named above.
What it does not remove
The IRS is direct about this in the announcement: while AEP prevents the assessment of certain penalties, you must still pay any tax and interest due, and any penalties that are not eligible.
That makes AEP much narrower than the phrase one-time forgiveness suggests. On a balance that has been outstanding for a while, interest is often the larger charge, and interest on the tax itself is not waived by any penalty relief. The page on penalties and interest on back taxes shows how the two build up, and the page on the IRS tax forgiveness program covers what else can reduce a balance.
The transition from First Time Abate
The IRS is phasing out First Time Abate during 2026. AEP fully replaces it for eligible returns with original due dates on or after January 1, 2027. Until then, some people who qualify will still receive a penalty notice for a 2025 return or a 2026 quarterly return.
- For a 2025 return or 2026 quarter: if you were charged a penalty and believe you qualified, contact the IRS. The IRS says taxpayers in this position may request First Time Abate
- For tax years before 2025: AEP does not reach back. First Time Abate still applies and still has to be requested
- For returns due in 2027 and later: AEP applies, and First Time Abate no longer does
If you received a penalty notice anyway
- 1.Check the notice for which penalty was charged and for which period. Only failure to file, failure to pay and failure to deposit are covered
- 2.Check your own record for the three prior years: were the same returns filed by their due dates, and was the tax paid?
- 3.Call the toll-free number in the top right corner of the notice and ask for penalty relief. You do not need to name First Time Abate or send documents; the IRS reviews your account
- 4.If you prefer to write, send a written statement or Form 843. The page on Form 843 explains when it is the right form
- 5.If your record does not qualify, ask about reasonable cause relief, which depends on what happened and needs supporting documents
- 6.If you cannot pay the remaining tax, set up a plan at the same time. See the Simple Payment Plan
Reasonable cause is still available
If you do not qualify for administrative relief, the IRS will consider reasonable cause: that you used ordinary care and were still unable to file or pay. The IRS gives fires, natural disasters, inability to get records, and the death or serious illness of the taxpayer or an immediate family member as examples. Lack of funds alone does not qualify. The existing guide to penalty abatement covers how those requests are argued.
When a penalty is removed by either route, the IRS automatically removes the interest that was charged on that penalty.
Where we come in
Whether you qualify shows on the account transcripts: the filing dates and penalty history for the three prior years. We read those transcripts for every open year, prepare any returns that are still unfiled, and explain in writing which penalties relief could apply to and which period it is best used on. A first-time relief request is often a phone call you can make yourself. We give you a scope and a price in writing before anything starts. See tax resolution for the scope.
Figures on this page were checked against the IRS and Massachusetts sources listed alongside on October 1, 2026. They change — confirm the current amount before relying on one.
General information for owner-led businesses, not advice for your specific situation. Tax and accounting rules change, and how they apply depends on facts particular to your business. Talk to us — or to another qualified professional — before acting on anything here.
