The IRS has started replacing First Time Abate, its long-standing request-based penalty waiver, with an automatic one. Taxpayers with a clean three-year filing and payment record are no longer asked to call or write: the agency applies the relief itself and sends a notice saying so. The tax and the interest on it are still owed.
The new relief is called Automatic Exemption from Penalty, or AEP. The IRS’s administrative penalty relief page, last updated July 14, 2026, says First Time Abate “is transitioning to a new relief called Automatic Exemption from Penalty (AEP), starting Summer 2026.” An Aug. 10 news release describes it as a process that “automatically provides relief if you have a history of filing and paying your taxes on time.”
Who gets the automatic relief
AEP applies to 2025 tax year returns and later, and to 2026 quarterly returns and later. The test is timely filed returns of the same type for the prior three years, or 12 consecutive quarters for quarterly filers. The covered forms are 1040, 1065 and 1120, along with employment tax forms 940, 941, 943, 944 and 945 and Form CT-1.
Three penalties are covered: failure to file, failure to pay and failure to deposit. Relief is applied when the original return finishes processing. A person who qualifies does not need to contact the IRS or respond to the notice, the page says.
The change matters most to someone who files on time, pays a bill late and would otherwise have had to know to ask. Under First Time Abate the taxpayer has to ask. Under AEP, the penalty is not assessed at all for those who qualify.
The notice that confirms AEP relief is one of several IRS letters a household can get in a season, and a letter showing an assessed penalty needs a different reaction than one saying it was waived. The IRS Refund Recovery Kit includes a notice decoder for reading IRS letters and a refund status tracker spreadsheet.
Read an IRS penalty notice with the Refund Recovery Kit’s notice decoder →
What stays owed
AEP removes penalties, not the bill. “You are liable for payment of any unpaid tax, interest, or other penalty assessment not subject to AEP relief,” the IRS page says. Interest on unpaid tax is still owed, and when a penalty is reduced or removed, the interest on that penalty is automatically reduced or removed with it.
For late payment, the page is specific: under AEP the failure-to-pay penalty “does not accrue and is not assessed on unpaid tax.” Under First Time Abate, by contrast, the failure-to-pay penalty may keep accruing until the tax is fully paid.
Where First Time Abate still applies
First Time Abate is not gone. The IRS table says it applies to “eligible 2025 tax year and 2026 quarterly returns (not considered for AEP), plus all prior years/periods.” The three-year compliance history is the same, and a business must also meet extra tests on failure-to-deposit penalties.
Someone who needs First Time Abate asks for it by calling the toll-free number in the top right corner of the IRS notice or letter, or by sending a written statement or Form 843 to the address in the Form 843 instructions. The request does not need to name First Time Abate or include documents, since the IRS reviews the account. Event-based filers, the Daily Delinquency Penalty and information reporting that depends on another filing are not eligible.
A taxpayer who does not qualify for AEP can still ask for relief for reasonable cause, according to the Aug. 10 release, which points to a separate IRS page on that route.
Reading the penalty notice and paying what remains
The free source for the rules is the IRS penalty relief page. Its instruction for a mismatch is direct: anyone who receives a notice showing an assessed penalty but believes they should have qualified for AEP should contact the IRS.
Three things are worth checking on any notice: which tax year or quarter it covers, whether the penalty line is zero or an amount, and what balance of tax and interest is left. A notice that says AEP was applied can still show a bill for the underlying tax. Keeping the notice with the return it refers to, and writing down the date a payment is made, makes any later question about interest easy to answer.
For anyone whose history has a gap, such as a late return in one of the past three years, the automatic route will not apply, and the reasonable-cause request described above is the one the IRS points to.
A waived penalty still leaves tax and interest
The risk is treating a relief notice as a zero balance: the unpaid tax and its interest stay on the account until they are paid. The IRS Refund Recovery Kit gives a notice decoder to sort out what each IRS letter says is owed, and a refund status tracker spreadsheet to keep the dates and amounts for a return in one place.
Sort out which IRS notice shows a penalty and which shows tax due with the Refund Recovery Kit →
This article was produced with AI assistance and edited for accuracy against the sources linked above.
