IRS to Replace First Time Abate Program with Automatic Penalty Relief for Compliant Taxpayers

The IRS announced it will begin automatically providing certain penalty relief during return processing to taxpayers with a history of filing and paying on time. The new process, called Automatic Exemption from Penalty, or AEP, will replace the First Time Abate program that has operated since 2001.

AEP will apply to eligible original returns beginning with tax year 2025 returns and 2026 quarterly returns.

Taxpayers generally qualify if they have timely filed the same type of return and paid any tax due for the prior three years, or for the prior 12 consecutive quarters in the case of quarterly filers. When records show eligibility, the IRS will not assess failure-to-file, failure-to-pay, or failure-to-deposit penalties during processing.

National Taxpayer Advocate Erin Collins previewed the change earlier in 2026.

Collins stated that about 1 million taxpayers, most of them lower-income, qualify for First Time Abate each year but do not know they need to request it. The IRS said the automatic process is intended to make relief more consistent. The failure-to-pay penalty is generally 0.5 percent of unpaid tax per month up to 25 percent.

The failure-to-file penalty is generally 5 percent per month, also capped at 25 percent, with a possible minimum if filing is more than 60 days late. When both apply in the same month, the combined rate is 5 percent. AEP does not eliminate the underlying tax owed or interest.

Forms 1040, 1065, 1120, 940, 941, 943, 944, 945, and CT-1 are generally eligible. Information returns and returns subject to infrequent or event-based filing obligations, such as estate or gift tax returns, are generally not eligible. The IRS will begin phasing out First Time Abate during the summer of 2026.