Earlier this year, we wrote about a new law requiring the IRS to send clearer “math error” notices, part of a broader push to make IRS communication more transparent and taxpayer-friendly. The IRS just took another step in that same direction, and it’s one that could save many of our clients money without them having to lift a finger.

What’s Changing

For years, if you had a clean compliance history and missed a filing or payment deadline for the first time, you could ask the IRS to waive the penalty under a program called First Time Abatement (FTA). The relief was there, but only if you knew to ask for it, how to ask, or had someone (like us) asking on your behalf.

The IRS has now replaced that request-based process with something better: the Automatic Exemption from Penalty (AEP) program. As the name suggests, eligible taxpayers no longer need to request relief at all. The IRS will identify them automatically and suppress the penalty before it’s even assessed.

Who Qualifies

Generally, you’ll qualify for AEP if you:

  • Timely filed your required returns and paid any tax due for the prior three years, or
  • For quarterly returns (like payroll filings), maintained a timely compliance history for the prior 12 consecutive quarters

For individuals, AEP prevents failure-to-file and failure-to-pay penalties from being assessed in the first place. For businesses, it also covers failure-to-deposit penalties (relevant for payroll tax deposits).

A few categories are excluded, including infrequent filings like estate and gift tax returns (Forms 706 and 709). And AEP doesn’t erase your obligation to pay the underlying tax, interest, or any penalty that isn’t covered by the program.

How the Rollout Works

The IRS began phasing in AEP on July 8, 2026, starting with 2025 tax year returns and 2026 quarterly returns. It’s expected to apply more broadly to 2026 returns in 2027, and for any original return due on or after January 1, 2027, AEP will fully replace the old FTA process.

If AEP applies to you, the IRS will send a notice explaining that no penalty was assessed because of your compliance history. You don’t need to do anything in response to that notice.

What to Do If You Still Get a Penalty Notice

This is the part that matters most in the near term: during the transition, some returns are still being processed under the old system, so you could receive a penalty notice even though you might qualify for relief.

If that happens:

  1. Don’t ignore it. Review the notice carefully, just as you should with any IRS correspondence.
  2. Check whether you received a separate AEP notice for that period. If not, you may need to request relief the old-fashioned way.
  3. Call your tax professional, or call the IRS directly, and be ready with the notice, the tax year or period involved, the specific penalty, and why you believe you qualify — whether that’s AEP, FTA, or reasonable cause relief based on your specific circumstances.

If a phone call doesn’t resolve it, a written request or Form 843 (Claim for Refund and Request for Abatement) may be necessary.

Why This Fits a Larger Pattern

Between clearer math error notices and now automatic penalty relief, the IRS is visibly leaning into changes that reduce the burden on taxpayers to catch its own mistakes or chase down relief they’re already entitled to. That’s a welcome trend, though it comes with the same caveat we gave in our math error post: automation reduces the need to ask, but it doesn’t eliminate the need to pay attention. Notices still deserve a careful read, and deadlines — like the 60-day window to dispute a math error adjustment — still apply.

The Bottom Line

If you have a solid recent compliance history and slip up on a filing or payment deadline, there’s now a good chance the IRS will waive the penalty before you ever have to ask. That’s a meaningful reduction in hassle, especially for anyone who’s previously had to track down FTA relief on their own.

That said, IRS notices are still worth a second look. If you receive a penalty notice and aren’t sure whether AEP applied, or if something about it seems off, reach out to our team — we’re glad to help you sort out what relief you’re entitled to.