From the official announcement by IRS ↗
The U.S. Internal Revenue Service (IRS) has announced a fully automatic penalty waiver mechanism, replacing the application review process that many taxpayers have had to initiate themselves. According to an IRS announcement on July 8, 2026, the new program, called Automatic Exemption from Penalty, or AEP, will replace the First Time Abate program — a penalty waiver for first-time filers that taxpayers previously had to contact the IRS to request.
The biggest difference: with AEP, taxpayers do not need to do anything. If they qualify, the IRS will automatically waive penalties for late filing, late payment, or late payment of withheld taxes, rather than requiring people to call or submit a request for waiver as before.
Timely taxpayers now receive automatic penalty relief — no application, no need to call and request review like before.
Who Qualifies and When
The program is scheduled to launch in the summer of 2026 and will apply to original tax returns from tax year 2025 and quarterly returns for 2026. To qualify for automatic waiver, a taxpayer must have a history of filing on time and paying taxes in full over the prior three years, or 12 consecutive quarters for quarterly filers — in other words, this is a reward for those who have consistently met deadlines, not for those with a history of multiple late filings.
Excluded from the program are informational returns and returns filed only in rare circumstances, such as Form 706 for estate tax returns and Form 709 for gift tax returns — meaning families who have recently received an inheritance or made a large gift will not receive automatic penalty waivers under this new mechanism.
Transition Period to Note
During the transition period in the summer of 2026, some eligible taxpayers may still receive penalty notices for 2025 tax year returns and quarters in 2026, as the system has not yet fully synchronized. In this case, taxpayers can proactively contact the IRS to request a penalty waiver under the old First Time Abate mechanism while awaiting the transition. The IRS stated that First Time Abate will be completely replaced for returns with original due dates on or after January 1, 2027.
For those who do not qualify for AEP, the option to request a waiver based on reasonable cause remains available — the IRS will evaluate each case individually. Even if penalties are waived, taxpayers must still pay the full amount of taxes owed, accrued interest, and any other penalties that do not fall under the waiver.
Frank J. Bisignano, IRS Commissioner, stated that this mechanism reflects the IRS's commitment to making tax compliance simpler and more consistent, while helping those who have already complied with deadlines avoid having to formally submit penalty waiver requests. View the official IRS announcement at the source link below.
Analysis
The First Time Abate mechanism has existed for many years but had one major drawback: taxpayers had to know about it and apply for it themselves, while many people — particularly older adults, recent immigrants, or small business owners filing their own taxes — had no idea this benefit existed. Automation removes that procedural barrier, shifting the burden of proof from taxpayers to the IRS system itself. This is also part of a broader series of operational reforms that the IRS is pushing to reduce the volume of penalty dispute correspondence — which currently makes up the majority of the agency's workload each year. The transition period extending through 2027 shows the IRS being cautious, avoiding any risk that the new system might overlook eligible taxpayers during the data migration.
Diaspora Impact
You do not need to take any action to benefit from this automatic penalty waiver mechanism — if you qualify, the IRS will apply it automatically when processing your 2025 tax return or 2026 quarterly returns. For nail salon owners, restaurant owners, or small businesses filing quarterly taxes, you should keep records of timely tax payments over the past 12 quarters to ensure you meet the requirements. If you receive a penalty notice during the summer 2026 transition period even though you believe you qualify, contact the IRS directly by phone or through the official website (irs.gov) to request a waiver under First Time Abate while the new system completes its transition. Do not pay any intermediary service to request this penalty waiver.