The IRS is moving from First Time Abate to Automatic Exemption from Penalty, or AEP, starting summer 2026. With 3 clean prior years, some late penalties are not charged at all. Fewer clients will need to ask for that relief.
October 30, 2026
First Time Abate has been the most common administrative penalty relief. It needs a clean filing and paying record for the 3 prior years. The taxpayer, or a pro, had to ask for it.
The IRS says that is changing. AEP begins in summer 2026. The relief is applied when an original return finishes processing.
Under AEP, a late filer or payer with 3 clean prior years is not charged the penalty. Quarterly filers need 12 straight quarters.
It covers failure to file, failure to pay and failure to deposit penalties. It starts with 2025 tax year returns and 2026 quarterly returns.
The eligible returns include Forms 1040, 1065 and 1120, and payroll Forms 940, 941, 943, 944 and 945.
The taxpayer gets a letter that says the penalty was not charged. No call or form is needed. Tax and interest are still owed.
What this means for a firm: fewer clean record clients will need a penalty relief request. Callers with a messy record, unfiled years or a payroll problem still need real work.
Payroll tax callers matter here. Forms 941 and 940 are on the list, but only for a business with 12 clean quarters. A business with missed deposits is outside that window.
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