For as long as most taxpayers can remember, getting the IRS to forgive a late-filing or late-payment penalty meant asking for it: a phone call, a written statement, or a formal abatement request, followed by waiting to hear back. Starting this summer, for people and businesses with a clean recent record, that entire ritual disappears. The penalty simply is not charged in the first place, and the only mail involved is a notice telling you the relief was already applied. The change carries a bureaucratic name, Automatic Exemption from Penalty, and it quietly rewires one of the most common unpleasant interactions Americans have with the tax agency.
Automatic Exemption from Penalty: What IR-2026-83 Changed
The IRS announced the new process on July 8, 2026, in news release IR-2026-83. Automatic Exemption from Penalty, or AEP, is a systemic relief program that stops three familiar penalties from being assessed while a return is processed: failure to file, failure to pay, and failure to deposit. Taxpayers do not need to take any action. If the agency’s own records show a qualifying history, the system applies the exemption on its own and mails a notice confirming the relief was granted. “By automatically applying penalty relief, the IRS recognizes that taxpayers who historically pay on time should not have to make a formal request for relief that is routinely granted,” IRS Chief Executive Officer Frank J. Bisignano said in the release.
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The Three-Clean-Years Test, or Twelve Straight Quarters
Eligibility turns on history, not hardship. You qualify if you timely filed the same type of return and paid any tax due for the three prior years; quarterly filers qualify with 12 consecutive clean quarters. The IRS’s administrative penalty relief page lists the return series eligible for AEP consideration: Forms 1040, 1065, and 1120 on the annual side, the employment tax series 940, 941, 943, 944, and 945, and Form CT-1. Relief starts with tax year 2025 returns and 2026 quarterly returns and continues for future periods. One detail in the agency’s own comparison chart deserves notice: under the old request-based system, the failure-to-pay penalty could keep accruing until the tax was fully paid even when relief was eventually granted; under AEP, that penalty is not assessed and does not accrue on eligible returns at all. For a household that files late once in a decade, that difference is the whole point.
First Time Abate Winds Down Between Now and January 2027
AEP replaces First Time Abate, the long-standing waiver that did roughly the same job but only for taxpayers who knew to contact the IRS and ask. The phase-out began during the summer of 2026, and the transition is not instantaneous. The IRS says some qualifying taxpayers may still receive penalty notices on eligible tax year 2025 and 2026 quarterly returns while its systems change over, and those taxpayers may still contact the agency and request First Time Abate the old way. The line in the sand is January 1, 2027: for eligible returns with original due dates on or after that date, AEP fully replaces First Time Abate. So if a penalty notice lands in your mailbox between now and then and your last three years are clean, the practical takeaway from the release is to call rather than pay, because the old relief still exists precisely to cover this gap.
What Stays on the Bill: Tax, Interest, and the Excluded Forms
AEP erases penalties, not obligations. The release is explicit that taxpayers must still pay any tax and interest due, along with any penalties that fall outside the exemption. Not every return qualifies even with a spotless history: returns filed only for specific transactions or infrequent events, such as the Form 706 estate tax return and the Form 709 gift tax return, generally are not eligible. It is also worth saying what the announcement does not contain: IR-2026-83 attaches no dollar figure to the program, so any estimate of how much AEP will save taxpayers in a year is someone’s guess, not an IRS number. Taxpayers who do not qualify for AEP can still request penalty relief based on reasonable cause, the separate path for people whose late filing had a good explanation rather than a good track record.
The 5%-a-Month Penalty That Now Waives Itself
What is actually at stake when a return slips past its deadline? The IRS’s failure-to-file penalty runs 5% of the unpaid tax for each month or partial month a return is late, up to a maximum of 25%, with a minimum penalty of $525 for returns due after December 31, 2025, that are filed more than 60 days late. When the failure-to-pay penalty, at 0.5% a month, applies in the same month, the filing penalty is reduced by that amount, but both grind on until they hit their caps or the bill is settled. And the agency charges interest on penalties, so the total grows until the balance is paid in full. Those are the mechanics that AEP now switches off automatically for a taxpayer with three clean years, which is why a plainly titled July news release matters more than it first appears: by the IRS’s own description in IR-2026-83, the relief that once required a request has become the default.
This article was produced with AI assistance and reviewed by a human editor. Figures are linked to their primary sources; where a claim could not be verified from the public record, we say so.
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