Taxpayers with a clean compliance record will no longer need to call the IRS, write a letter, or file paperwork to get a first-time penalty waived. The agency announced IR-2026-83 this month, creating a new process called Automatic Exemption from Penalty, or AEP, that removes the burden of requesting relief from people who typically file and pay on time. Processing is expected to begin this summer, covering individual returns starting with tax year 2025 and quarterly employment-tax filings beginning with 2026.
Why automatic penalty waivers change the calculus for compliant filers
Until now, the IRS operated under a system called First Time Abate, or FTA. Taxpayers who had a clean three-year record could get a penalty removed, but only if they knew the option existed and took action to request it. That meant calling the IRS, navigating long hold times, or submitting Form 843 to formally ask for abatement. The National Taxpayer Advocate has said that eligible taxpayers routinely missed FTA relief because of lack of awareness, inability to reach the IRS, or inability to afford professional representation.
AEP flips that dynamic. Instead of waiting for a taxpayer to ask, the IRS will screen returns during processing and suppress qualifying penalties before they ever appear on a bill. According to the agency’s administrative relief guidance, taxpayers whose penalties are waived will receive a notice or letter explaining the relief and the tax year it applies to. The practical effect is that a filer who missed a deadline by a few days or underpaid slightly will not have to spend hours on the phone or hire a tax professional just to get a waiver the agency would have granted anyway.
The shift also has implications for IRS operations. Under the old request-based model, staff time went toward reviewing abatement requests after penalties had already been assessed, printed on notices, and disputed by taxpayers. Automating that relief at the front end could free up examiner and customer-service hours for other work, including earlier outreach to first-time filers or taxpayers who fall outside the clean-record threshold. In its announcement of the new automatic penalty process, the IRS emphasized simplification and burden reduction but did not publish projections on reduced call volume or Form 843 submissions, so the scale of that operational shift is not yet quantified.
Which penalties and forms qualify under AEP
The new process covers failure-to-file and failure-to-pay additions to tax, which are defined under Section 6651 of the Internal Revenue Code, as well as failure-to-deposit penalties under Section 6656. Those statutes govern the monthly percentage charges that accumulate when returns are late or payments fall short, and the tiered penalties employers face for missing payroll-tax deposit deadlines.
Eligible return types span both individual and business filings. For individuals, AEP applies to Form 1040 series income tax returns, including returns filed with common schedules and attachments. For pass-through entities and corporations, it extends to partnership returns on Form 1065 and corporate returns on Form 1120. On the employment-tax side, quarterly payroll returns on Form 941 and annual unemployment returns on Form 940 are included, along with related failure-to-deposit penalties that arise when required payroll-tax deposits are late or incomplete.
The IRS has indicated that AEP will apply to a taxpayer’s first failure to file, pay, or deposit after a clean-compliance period, similar to the lookback used under FTA. In general, that means no penalties of the same type in the prior three tax years for the same taxpayer and tax form. The automatic review will occur as part of normal processing, so taxpayers who qualify should see that penalties are never assessed or are promptly removed without any action on their part.
Who qualifies-and who does not
To benefit from AEP, taxpayers must have a history of timely filing and paying, with no significant penalties for the same type of tax in the preceding years. The IRS will also require that any outstanding returns for those years be filed before automatic relief is granted. In addition, AEP is designed for unintentional, first-time issues; taxpayers involved in fraud, willful noncompliance, or abusive tax schemes will not qualify for automatic waivers and may face heightened enforcement instead.
Importantly, AEP does not replace other forms of penalty relief. Reasonable-cause abatement, disaster-related relief, and statutory exceptions remain available for taxpayers who do not meet the clean-record test or who face extraordinary circumstances such as natural disasters, serious illness, or reliance on incorrect written advice from the IRS. Those taxpayers may still need to submit documentation or request review, but AEP should narrow the pool of people who must navigate that more complex process.
What taxpayers should do now
Although AEP is designed to be automatic, taxpayers can take steps now to position themselves to benefit when the program begins. Keeping all required returns filed, even if full payment is not immediately possible, helps preserve eligibility by avoiding repeat failure-to-file penalties. Setting up electronic payment options and calendar reminders for estimated taxes and deposit deadlines can also reduce the risk of a first-time slip.
Tax professionals may want to review client histories to identify those who have enjoyed a long record of compliance and explain how AEP could apply to future years. For small employers, in particular, understanding that a single late payroll deposit may be forgiven automatically-while repeat issues will not-could influence how they prioritize cash flow and compliance systems.
For now, the core message is that taxpayers who typically follow the rules will have a stronger safety net for an occasional, inadvertent mistake. By moving from a request-based system to an automatic screen, the IRS is shifting part of the penalty regime from “ask and hope” to “qualify and receive,” aiming to reduce administrative friction for both the agency and compliant filers.
