First-time IRS penalty relief is now automatic.
Missed a filing or payment deadline on your 2025 return? The IRS’s new Automatic Exemption from Penalty program means qualifying taxpayers get first-time penalty relief without calling, writing, or asking. Here’s who qualifies — and what it doesn’t cover.
On July 8, 2026, the IRS announced the biggest change to penalty relief in years: the new Automatic Exemption from Penalty (AEP) program. If you qualify, failure-to-file, failure-to-pay, and failure-to-deposit penalties simply aren’t assessed during processing — and the IRS sends a notice confirming the relief. No phone call, no letter, no forms. It replaces the old First-Time Penalty Abatement request process for eligible returns.
Who qualifies
- You filed the same return type for the three prior years (for example, 2022–2024 for a 2025 return) — or 12 consecutive quarters for quarterly filers.
- No unresolved penalties in those years. (Estimated tax penalties don’t disqualify you.)
- All currently required returns filed — or an extension in place.
- Tax paid, or in a payment arrangement.
It covers original individual and business income tax returns — Forms 1040, 1065, and 1120 — for tax years 2025 and later, plus 2026 quarterly returns.
What it does NOT cover — read this part
- The estimated tax underpayment penalty (§6654). This is the one that surprises people. First-time abatement — automatic or not — has never covered it.
- The accuracy-related penalty (§6662) — the 20% penalty for negligence or substantial understatement.
- Amended returns and most other penalty types still need the old request process or a reasonable-cause argument.
“Automatic” doesn’t mean “invisible”
Check your IRS online account or account transcript to confirm the relief actually posted. The systems are new, and mistakes happen. And if you don’t qualify for automatic relief, reasonable-cause abatement is still very much alive — it just takes a request.
What to do right now
- Check your account transcript. Log in to your IRS online account and confirm the penalty relief actually posted. New systems make mistakes.
- Pay or arrange to pay. Automatic relief doesn’t erase the underlying tax — only the penalty. An installment agreement counts as “arranged to pay.”
- File anything missing. Unfiled required returns disqualify you. Extensions count, but the return still has to get filed.
- Don’t assume your state follows. California’s Franchise Tax Board, for example, doesn’t automatically mirror this IRS policy — a separate state abatement request may still be needed.
The bottom line: the IRS just removed the paperwork from first-time penalty relief for the most common penalties. But estimated-tax and accuracy penalties are still on you — and those are the ones that compound quietly. And remember: relief wipes the penalty, not the tax — the underlying balance keeps accruing interest until it’s paid or in an agreement.
Alex Volkov, CPA is a New York-licensed CPA with over two decades in accounting, focused on resolving IRS tax problems — back taxes, liens, levies, garnishments, and audits — for individuals and businesses nationwide.
Penalties stacking up?
Automatic relief covers some penalties — but not all. Ask the question bar which of yours qualify — or call free and talk it through with a CPA.
Sources: CL-Law, “IRS Implements Automatic Penalty Relief for First-Time Offenders” (July 30, 2026). Read the alert; Catalyst CPA, “IRS First-Time Penalty Abatement: Now Automatic in 2026.” Read the guide.