The Internal Revenue Service (IRS) of the United States is implementing a new mechanism starting in 2026 that can automatically prevent certain penalties for taxpayers who, despite having a temporary delay, have a good record of tax compliance.
The program is called Automatic Exemption from Penalty (AEP), and it represents a significant change from the previous system: eligible individuals no longer have to call the IRS or submit a specific request to receive relief.
Instead of first imposing the fine and then requiring the taxpayer to request its removal, the IRS can automatically identify individuals or businesses that are eligible and prevent certain penalties from being imposed.
The measure began to be implemented during the summer of 2026 and may apply to eligible original filings for the 2025 tax year and later, as well as certain quarterly filings from 2026 onward, as explained by the IRS in its official guide on administrative penalty relief.
What penalties can the IRS automatically waive?
The AEP mainly focuses on three types of violations:
Submit a tax return late.
Pay certain overdue taxes late.
Failing to make certain tax deposits on time, especially in the case of employers.
For individual taxpayers, one of the most significant penalties is the fine for failing to file the declaration on time.
Typically, the IRS can impose a late filing penalty of 5% of the unpaid tax for each month or part of a month that the payment is delayed, up to a general maximum of 25%. The penalty for non-payment usually starts at 0.5% per month of the outstanding tax and can also reach certain limits set by law.
The new program may prevent those penalties from being enforced when the taxpayer meets all the requirements.
The main requirement: three years of good history
It is not enough that it is simply the first time someone is late.
The IRS requires a timely compliance history for the past three years or, in the case of certain quarterly returns, for the previous 12 consecutive quarters.
Among the criteria published by the agency is that the same type of statement must have been submitted on time during that period.
Additionally, during those previous years, there should not be certain penalties that disqualify the taxpayer. An important exception is the penalty related to estimated taxes, which by itself does not prevent access to the AEP.
Eligibility may still exist when a prior penalty has been subsequently removed for a reasonable cause accepted by the IRS or due to an error by the agency itself.
What forms may qualify?
The list published by the IRS includes some of the most commonly used forms by individuals and businesses in the United States.
Form 1040.
Form 1065.
Form 1120.
Forms 940, 941, 943, 944, and 945.
CT-1 Form.
This means that the benefit is not limited to individual taxpayers. It can also extend to certain businesses and employers that meet the requirements.
In the case of businesses, there are additional conditions related, among other things, to the history of federal tax deposits.
Not all forms are included
The automatic relief does not cover any statements or any type of penalty.
The IRS expressly states that certain filings submitted only once or as a result of specific events are not eligible.
Among the examples mentioned by the agency are Form 706, related to estate taxes, and Form 709, used for certain donations.
Also not covered are, among others, the so-called daily penalties for non-payment and certain penalties related to informative declarations.
The official IRS publication itself warns against a broad interpretation of the program: tax penalties have not disappeared and taxpayers are still required to file, pay, and make their deposits on the due dates.
You don't have to apply for the benefit if you qualify
This is one of the main differences compared to the old system known as First Time Abate (FTA).
When the AEP applies, the IRS reviews its records during the processing of the original return and automatically determines if the taxpayer qualifies.
If qualified, the agency does not impose the fines covered by the program and subsequently sends a notice explaining that the relief was applied due to the compliance history.
In principle, the recipient of this communication does not need to respond or submit another form.
If, on the other hand, the taxpayer receives a notification indicating a penalty and believes they should have qualified for the AEP, the IRS recommends contacting the agency.
The tax and the interest do not disappear
This is probably the point that it's most important to be clear about.
That the IRS does not impose a penalty under the AEP does not mean that the tax debt is forgiven.
The taxpayer remains responsible for any outstanding taxes, the corresponding interest on that tax, and any other penalties not covered by the program.
For example, a person may qualify for a waiver of the late payment penalty but still owe the original tax and the accrued interest on that balance.
What happens to the old First Time Abate?
The AEP is gradually replacing the First Time Abate program, which for years allowed taxpayers with a good history to request the removal of certain penalties.
The fundamental difference is that the FTA typically required the taxpayer to contact the IRS to request the benefit. With AEP, the review becomes automatic.
During the transition period, there may still be 2025 statements or quarterly statements from 2026 that were processed before the new system went into operation and that can be subject to the old procedure.
The IRS states that AEP will completely replace First Time Abate for eligible original returns with due dates on or after January 1, 2027.
Why is the change especially relevant in October?
The new mechanism arrives at an important time in the U.S. tax calendar.
As CiberCuba recently explained, the upcoming October 15, 2026 is the deadline for most taxpayers who requested an extension to file their federal tax return for 2025.
Those who submit correctly before that date within a valid timeframe are not submitting late simply because they do so after April.
However, anyone who allows the extended deadline to pass could face a penalty for late submission.
In those cases, a taxpayer with the required history may qualify for the new automatic relief, provided that the return and the penalty are among those covered by the program.
The extension for submission did not change the general date by which the corresponding tax for 2025 was due, which means that interest may continue to accumulate on outstanding amounts.
What to do if you don't qualify
Being excluded from the AEP does not necessarily mean that there are no other avenues for relief.
The IRS maintains the option to request a reduction or elimination of certain penalties for reasonable cause when the circumstances justify the noncompliance.
These cases are evaluated individually and may depend on factors such as serious illnesses, disasters, inability to access records, or other circumstances that have hindered compliance despite having acted with reasonable diligence.
Taxpayers who receive a letter or notice from the IRS should carefully review which penalty is being charged, for which year it applies, and whether the system has already taken the AEP into account before making a payment or submitting a relief request.
The change means that a one-time infraction no longer has to automatically result in a fine for those who have a solid compliance history, but it does not make delays a consequence-free option: the outstanding tax and its interest continue to exist even if the penalty is avoided.
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