Key Takeaways:

• AEP replaces the First Time Abate program, automatically checking your compliance history at filing instead of requiring you to request relief.
• A clean three-year track record (12 consecutive quarters for quarterly filers) generally qualifies you for relief.
• AEP covers late filing, late payment, and missed payroll deposit penalties — underreporting and specialized returns like estate/gift tax still require the standard process.
• If you qualify, the IRS applies the relief automatically and sends a notice — no application or phone call needed.
• Any penalty notice received during the rollout may still qualify under First Time Abate, and interest and tax owed are never waived, only the penalty.

How the IRS’s New Penalty Relief Program Actually Works

Missing a tax deadline can happen, and until recently, getting a tax penalty waived required contacting the IRS and formally requesting relief. Now, with the introduction of Automatic Exemption from Penalty (AEP), the IRS can automatically waive certain penalties for taxpayers with a good compliance record. Here’s what to know.

AEP Replaces First Time Abate

Since 2001, the IRS has offered penalty relief through its First Time Abate program. Under this program, taxpayers had to reach out to the IRS, explain their situation, and wait for their request to be approved and processed. The main issue with First Time Abate is that many taxpayers didn’t even know it existed.

The IRS aims to fix this with AEP. Instead of putting the burden on the taxpayer, the IRS checks your compliance history when you file your tax return and automatically determines whether you qualify. If you do, the penalty won’t show up on your account.

Who Qualifies and What’s Covered?

The defining qualification for penalty relief is a clean track record. If you’ve filed required returns and paid your taxes on time during the previous three years, you are likely eligible. For quarterly filers, the IRS generally reviews the previous 12 consecutive quarters.

AEP applies to three of the most common penalties: filing late, paying late, and missing a payroll deposit. Other penalties, like underreporting income, still need to go through the normal process. And a handful of specialized returns, including estate and gift tax filings, are also left out.

Relief is Automatically Applied

One of the biggest advantages of AEP is that taxpayers don’t need to fill out an application or call the IRS to claim the relief because the IRS reviews your eligibility when processing your return.

If you qualify, the IRS will send you a notice explaining that AEP was applied. In most cases, you won’t need to take any further action.

Don’t Ignore a Penalty Notice

AEP is a new program, so the rollout could take some time. While the IRS transitions from the old system, you could still receive a penalty notice on a return that should technically qualify for AEP. If you do, call the IRS and ask about First Time Abate. This is still an option while the IRS makes the switch.

Remember that AEP only removes the penalty. Any tax you owe, along with interest, is still due.

If AEP Doesn’t Apply to You

There may still be options available for those who don’t meet the three-year clean history requirement. Reasonable cause relief is still available if something outside your control caused the delay, like a hospital stay or a natural disaster. The IRS also issues special relief after major disasters, so it’s worth checking if your situation qualifies before assuming you’re stuck with the penalty.