The Internal Revenue Service has begun retiring one of its oldest penalty-relief tools, First Time Abate, in favor of a new automatic process that does not require anyone to call or write in. The change affects any household or small business that occasionally files or pays a return late but otherwise has a clean compliance record. Because the new process changes what happens the moment a return finishes processing, rather than months later after a request is filed, it can decide whether a late return produces a penalty at all. The agency has framed the update as a fairness fix rather than a giveaway, since it changes only when relief is granted, not who ultimately qualifies for it.
Automatic Exemption From Penalty Ends the Phone-Call Requirement
First Time Abate has long been the IRS’s most-used administrative penalty waiver, covering taxpayers with three years of on-time filing and payment. The catch was procedural: a taxpayer had to call the IRS or send a written request, even when the agency’s own records already showed a qualifying history. Under that system, the penalty was assessed first and removed only after the request succeeded.
Automatic Exemption from Penalty, or AEP, removes that step entirely. When an eligible return posts late, the IRS checks the same compliance history automatically during processing, and if the taxpayer qualifies, no failure-to-file, failure-to-pay, or failure-to-deposit penalty is assessed in the first place. A notice still arrives afterward, but it confirms that relief was applied rather than demanding a response. That notice explains, in plain terms, that even though a return or payment was late, no penalty applies because of the account’s clean three-year history — the same explanation a taxpayer previously had to extract through a phone call.
Free refund decision tree: A delayed refund usually means one of a few specific things, and each has a different next step. Find the reason with the free refund tracker.
Free download from RetireShield. Getting it also signs you up for the free Retirement Money Brief, a weekday email. Unsubscribe anytime.
Three Years of On-Time Filing and Paying Is the Whole Test
According to the IRS announcement of the change, a taxpayer qualifies for AEP by having timely filed the same return type and paid any tax due for the three prior years, or 12 consecutive quarters for quarterly filers. IRS Chief Executive Officer Frank Bisignano described the shift as a matter of consistency rather than convenience, saying taxpayers who historically pay on time should not have to make a formal request for relief that is routinely granted anyway. Coverage extends to Forms 1040, 1065 and 1120, along with the employment tax family — 940, 941, 943, 944 and 945 — plus Form CT-1.
Not every return qualifies. Returns tied to one-time or infrequent events, such as an estate tax return or a gift tax return, are generally excluded, and the relief does not reach the daily delinquency penalty charged to some exempt organizations. The IRS’s administrative penalty relief page lists the eligible return series and lays out a side-by-side comparison of how the older and newer processes work.
Business taxpayers face two extra conditions on top of the three-year filing history. The same administrative penalty relief page states that AEP will not apply if the failure-to-deposit penalty was already waived four or more times in the prior three years, and it will not apply if a missed deposit was tied to deliberate avoidance of the Electronic Federal Tax Payment System. Neither condition touches individual filers using Form 1040.
A Phone Call Still Matters During the Summer 2026 Transition
AEP has been rolling out since summer 2026, and the IRS has been explicit that the transition is not instant. Some taxpayers who qualify may still receive a penalty notice on an eligible 2025 tax-year or 2026 quarterly return while the systems catch up, and in those cases the fix is the same one that existed before AEP: contacting the IRS to request First Time Abate for that specific return. That request can go through a phone call to the number printed on the notice, or a written statement, including Form 843, Claim for Refund and Request for Abatement, sent to the address the form’s instructions specify. For now, the two programs are running side by side rather than one replacing the other overnight.
January 1, 2027 Is When First Time Abate Stops Applying
The date that makes the switch permanent is fixed: AEP replaces First Time Abate entirely for any return with an original due date on or after January 1, 2027. After that date, a taxpayer with the qualifying history no longer has the option of calling in for First Time Abate on that return — the automatic process becomes the only path. The stakes are concrete: the failure-to-file penalty runs 5% of the unpaid tax for each month or partial month a return is late, capped at 25%, with a minimum penalty of $525 once a return is more than 60 days overdue. For a business making quarterly payroll tax deposits, the same three-year qualifying clock is measured in 12 consecutive quarters, so a single missed deposit early in that stretch can restart the count and delay when AEP first becomes available to that business.
The failure-to-pay penalty adds another 0.5% per month on top, also capped at 25% of the unpaid balance. Under the older First Time Abate process, both penalties were assessed first and then reversed once a request was approved; under AEP, the agency’s own side-by-side comparison shows the failure-to-pay penalty is not assessed at all for a qualifying return, and never begins accruing while that return is being processed. For a household that misses one deadline inside an otherwise clean three-year record, that difference decides whether a penalty ever appears on the account.
The Other Three-Year Clock on the Same IRS Account
The compliance window that decides AEP eligibility is not the only three-year clock the IRS keeps on an account. A separate deadline governs how long a taxpayer has to claim a refund tied to an original return, and it runs independently of anything to do with penalties or notices. A household untangling one IRS notice this filing season may be sitting on an unrelated refund question with its own clock already running.
The IRS Refund Recovery Kit is a 13-page kit with a notice decoder, the refund-trace steps for Form 3911, and the 3-year refund deadline laid out plainly.
See The IRS Refund Recovery Kit.
AI-assisted research and drafting; reviewed by an editor.
