What changed
Taxpayers with a history of filing and paying on time now have an easier path to penalty relief. This summer, the IRS launched a new program called the Automatic Exemption from Penalty (AEP), which replaces the long-standing First Time Abate administrative relief. AEP is designed to remove the need to contact the IRS to request relief and to reduce the burden on taxpayers who have a clean compliance record.
Who qualifies
AEP applies to eligible original returns starting with tax year 2025 and 2026 quarterly returns, and to future tax periods. You qualify if you have a history of filing on time and paying any tax due over the previous three years (or 12 consecutive quarters for quarterly returns).
When you are eligible, the following penalties are not assessed during processing:
- Failure to file
- Failure to pay
- Failure to deposit
You don't need to do anything
Eligible taxpayers do not need to take any action to receive this relief. If the IRS applies AEP, you will receive a notice confirming that the relief was granted.
Not all returns are eligible. Returns filed only in response to specific transactions or infrequent events — such as Form 706 (U.S. Estate Tax Return) or Form 709 (Gift Tax Return) — generally do not qualify.
The transition period
As First Time Abate phases out and transitions to AEP, some qualifying taxpayers may still receive penalty notices for eligible tax year 2025 and 2026 quarterly returns. If you believe you qualify, you may contact the IRS to request First Time Abate during this transition. AEP will fully replace First Time Abate for eligible returns with original due dates on or after January 1, 2027. For more detail, see the IRS page on Administrative penalty relief.
If you don't qualify for AEP
Taxpayers who do not qualify for AEP may still request penalty relief based on reasonable cause, and the IRS will notify them of the outcome. Keep in mind that while AEP prevents the assessment of certain penalties, you must still pay any tax and interest due, along with any penalties that are not eligible for relief.
Why this matters for non-residents and foreign founders
If you run a U.S. company from abroad or file as a non-resident, penalties for late filing or late payment can add up quickly — and reaching the IRS by phone from another time zone is rarely easy. The move to automatic relief means that a genuinely compliant taxpayer who slips once may avoid a penalty without ever having to call the IRS. The key takeaway: keep a consistent, on-time filing and payment history, because that history is exactly what makes you eligible.