IRS Announces Automatic Penalty Relief Program Beginning in Summer 2026

The IRS announced on July 8, 2026, that it is replacing much of its manual First Time Abate process with Automatic Exemption from Penalty, a systemic relief program that suppresses certain failure-to-file, failure-to-pay, and failure-to-deposit penalties before they are assessed. If you already received a penalty notice on a 2025 return or a 2026 quarterly return processed before the new system went live for that return type, the change does not apply automatically. You may still need to contact the IRS.

‍

What Is Changing?

First Time Abate required eligible taxpayers to know the program existed, reach the IRS, and request relief after a penalty was assessed. Automatic Exemption from Penalty, or AEP, is applied during original-return processing. No call, Form 843, or formal request is required when the system identifies eligibility.

‍

IRS Chief Executive Officer Frank J. Bisignano said: "By automatically applying penalty relief, the IRS recognizes that taxpayers who historically pay on time should not have to make a formal request for relief that is routinely granted."

‍

Phase 1 began in summer 2026 for eligible 2025 tax year returns and 2026 quarterly returns. For original returns with due dates on or after January 1, 2027, AEP replaces First Time Abate entirely. First Time Abate continues for eligible 2024 tax year returns, eligible 2025 quarterly returns, and eligible 2025 and 2026 returns processed before AEP is live for that return type.

‍

AEP does not cancel the underlying tax or interest on tax. It suppresses covered penalties before assessment. The IRS sends a notice explaining that a penalty was not assessed because of the taxpayer's prior timely compliance. No response is required when AEP applies as intended.

‍

Who Benefits

In fiscal year 2025, nearly 220,000 taxpayers received First Time Abate relief through the manual process. The Taxpayer Advocate Service estimates that if AEP had been in place for the same period, more than 1.5 million taxpayers would have received penalty relief — about seven times as many. That roughly 85 percent gap is a TAS extrapolation from internal analysis, not a direct headcount of denied or unaware taxpayers.

Eligibility generally requires a timely compliance history on the same return type for the prior three years, or 12 consecutive quarters for quarterly filers, with no penalties assessed other than the estimated tax penalty, or with any assessed penalties later abated for reasonable cause or IRS error. Business taxpayers face additional failure-to-deposit history limits.

‍

Covered and Excluded Penalties

‍

After 60 days late, the failure-to-file minimum is the lesser of the inflation-adjusted statutory amount or 100 percent of the tax required to be shown on the return. For returns required to be filed in 2026, that amount is $525 (Rev. Proc. 2024-40). AEP does not eliminate that statutory framework; it can prevent assessment when eligibility is met.

‍

Transition Period Warning

Some taxpayers who would qualify for AEP may still receive penalty notices if their eligible 2025 return or 2026 quarterly return was processed before AEP was available for that return type. Relief is not applied retroactively to already-processed returns in those cases.

If you receive a notice during the transition, call the number on the notice. Have the notice, penalty type, tax year or period, and your compliance history ready. If phone resolution fails, Form 843 may be needed. Do not assume the system will catch up on its own.

‍

Reasonable Cause Still Matters

National Taxpayer Advocate Erin M. Collins welcomed automatic relief but warned that the IRS "changed course" on an approach that would have preserved reasonable cause alongside AEP. Reasonable cause is statutory. AEP is administrative.

If your facts support reasonable cause — for example, serious illness, natural disaster, or IRS error — request reasonable cause relief affirmatively. Accepting AEP alone can use administrative protection for that period and leave you without that form of relief if another covered failure occurs later in the lookback window.

‍

What the Data Does Not Show

Primary sources do not disclose First Time Abate denial rates, average penalty amounts avoided, demographic breakdowns of the estimated 1.5 million figure, or IRS projections of forgone penalty revenue. The sevenfold increase is a TAS estimate of who would have received relief had AEP existed in fiscal year 2025, not a measurement of 2026 outcomes.

‍

What to Do If You Receive a Penalty Notice

1. Read the notice carefully. Confirm the tax period, penalty type, and amount.

2. Check whether the return was processed before AEP was live for that return type.

3. Call the IRS number printed on the notice. Ask about First Time Abate or Automatic Exemption from Penalty, as applicable.

4. If circumstances support reasonable cause, state those facts and request reasonable cause relief, not only administrative abatement.

5. If phone resolution fails, consider Form 843 Claim for Refund and Request for Abatement.

6. Free help is available from the Taxpayer Advocate Service at 1-877-777-4778.

7. For complex multi-period or business cases, you may contact GetTaxReliefNow at (888) 260-9441.

‍

Learn More

For eligibility details, lookback rules, and return-type coverage, see the full guide: (/irs-tax-reliefs/irs-automatic-exemption-from-penalty).

‍

Source Note

This article summarizes IRS and National Taxpayer Advocate materials released July 8, 2026, and related Internal Revenue Code provisions. It is not legal advice. Program details may change as rollout continues. Tax results vary by facts and circumstances.

‍

Footnotes

1. IRS, IR-2026-83, "IRS simplifies penalty relief; introduces automatic process for eligible taxpayers," July 8, 2026, https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers

2. IRS, FS-2026-12, "Automatic Exemption from Penalty: What taxpayers should know," July 8, 2026, https://www.irs.gov/newsroom/automatic-exemption-from-penalty-what-taxpayers-should-know

3. National Taxpayer Advocate Erin M. Collins, "A Long-Awaited Taxpayer Win: The IRS Implements Automatic Penalty Relief," July 8, 2026, https://www.taxpayeradvocate.irs.gov/news/nta-blog/a-long-awaited-taxpayer-win-the-irs-implements-automatic-penalty-relief/2026/07/

4. IRS, Administrative Penalty Relief, https://www.irs.gov/payments/administrative-penalty-relief

5. IRS, Penalty Relief for Reasonable Cause, https://www.irs.gov/payments/penalty-relief-for-reasonable-cause

6. IRC § 6651, https://www.law.cornell.edu/uscode/text/26/6651

7. IRC § 6656, https://www.law.cornell.edu/uscode/text/26/6656