Partner Hillary Alexander, CPA, Explains IRS Automatic Penalty Relief

There is a new program worth celebrating. 

The IRS is rolling out Automatic Exemption from Penalty, or AEP, a systemic relief process expected to begin this summer. 

It replaces the First Time Abatement and allows the IRS to grant certain penalty relief during return processing without the taxpayer having to request it.

No phone call. No letter. For a change, IRS got this one right.

Why this matters

First Time Abatement has been the most common form of administrative penalty relief for years. The catch was that someone had to notice the penalty, know the relief existed, and formally request it. That structure quietly favored taxpayers with the knowledge or the representation to make the ask.

AEP flips that. By automatically recognizing taxpayers with a strong compliance history, it applies relief consistently and reduces the burden on the people it is meant to help. The goal is fairness and consistency, and this delivers on both.

Who qualifies

You are eligible if you have a history of timely filing and paying any tax due for:

• The three prior years, for annual returns
• 12 consecutive quarters, for quarterly returns

What AEP covers

When you qualify, penalties are not assessed during processing for:

• Failure to file
• Failure to pay
• Failure to deposit

When it applies

AEP applies to eligible original returns beginning with the 2025 tax year and 2026 quarterly returns, plus future tax periods.

What you need to do: nothing

If you are eligible, the IRS applies the relief automatically and issues a notice confirming it was granted. There is no form to file and no request to make.

During the transition, watch your notices

One practical note as the IRS phases out First Time Abatement this summer. Some qualifying taxpayers may still receive penalty notices for eligible 2025 and 2026 quarterly returns during the changeover. If that happens to you, you can contact the IRS to request First Time Abatement in the meantime. AEP will fully replace First Time Abatement for eligible returns with original due dates on or after January 1, 2027. If you get a notice you were not expecting, send it our way before you pay it.

A few important limits

AEP is a real win, but it is not a clean slate on everything:

• It relieves only qualifying penalties. You are still responsible for the underlying tax, applicable interest, and any penalties that are not eligible for automatic relief.
• If you do not qualify for AEP, you can still request relief based on reasonable cause.
• Not all returns are eligible. Information returns and returns filed only in response to specific or infrequent events, such as Form 706 (Estate Tax) or Form 709 (Gift Tax), generally do not qualify.

The bottom line

AEP is one of those rare changes that makes the system simpler and fairer at the same time. Most eligible taxpayers will not have to lift a finger. If you want to confirm you qualify, understand how this affects a specific return, or make sense of a notice you received, the team at Brinker Simpson & Company is here to help.

Contact us to talk through what AEP means for your situation.