IRS Automatic Penalty Relief (AEP): Will Your Penalty Be Removed?

What Is IRS Automatic Penalty Relief (AEP)?

On July 8, 2026, the IRS announced a new way to handle some of the most common penalties (news release IR-2026-83). It is called the Automatic Exemption from Penalty, or AEP. If you qualify, the IRS does not charge the failure-to-file, failure-to-pay or failure-to-deposit penalty in the first place. The IRS fact sheet FS-2026-12 (July 2026) says no application, form or separate request is required.

AEP takes the place of First-Time Abatement (FTA) for eligible returns with an original due date on or after January 1, 2027. A transition starts earlier: tax year 2025 annual returns and 2026 quarterly returns can also get AEP. FTA is relief you have to ask for; AEP is applied by the IRS when it processes your return.

This guide is current as of November 11, 2026. The detailed IRS rule is an Internal Revenue Manual procedural update (SBSE-20-0626-0643, June 17, 2026) that is not yet part of the published IRM 20.1.1. Rules can change, so check the IRS administrative penalty relief page before you act.

Which Returns and Penalties AEP Covers

Penalties: failure-to-file (IRC 6651(a)(1), plus the late-filing penalties for partnership and S corporation returns under IRC 6698 and 6699), failure-to-pay (IRC 6651(a)(2) and (a)(3)) and failure-to-deposit for employment taxes (IRC 6656).

Returns: Form 1040 for individuals; Forms 1065, 1120 and 1120-S for businesses; the employment tax returns 940, 941, 943, 944 and 945; and Form CT-1. The IRS procedural update says relief for Form CT-1 is applied by hand rather than automatically.

Not covered: estimated tax penalties (IRC 6654 and 6655), accuracy-related penalties (IRC 6662), information-return penalties (IRC 6721 and 6722), daily delinquency penalties and other penalties the IRS lists as outside AEP. IRS Tax Tip 2026-59 names estate and gift tax returns (Forms 706 and 709) as returns that do not qualify. AEP never removes the tax itself or interest on unpaid tax.

Who Qualifies

Under the IRS procedural update, three things are checked. The return was filed within 3 years of its original due date (an extension does not move that date). For the 3 prior years, or 12 prior quarters for quarterly returns, you filed the same type of return or did not have to. And no penalty was assessed in that period, other than an estimated tax penalty.

A penalty the IRS removed for reasonable cause or because of its own error does not count against you. A penalty removed by First-Time Abatement or AEP does. If you received FTA or AEP in the prior 3 years, you do not get AEP this time.

Special rules: on a joint return, both spouses must meet the test. Employment tax returns also have deposit-history rules. Returns the IRS prepared for you (a substitute for return, or a return made under IRC 6020(b)) do not count as filed returns in the history check.

Will My Penalty Be Removed? Find Your Situation

The penalty is not a failure-to-file, failure-to-pay or failure-to-deposit penalty (for example an estimated tax, accuracy or information-return penalty): neither AEP nor FTA applies. Your options are reasonable cause, a statutory exception, or paying or setting up a payment plan.

Tax year 2024 or earlier, or a 2025 quarterly return: relief is not automatic. If your 3-year history is clean, ask for First-Time Abatement.

Tax year 2025 annual return or 2026 quarterly return (the transition): check your IRS account first, because AEP may already have been applied. If a penalty is still charged, you can ask for FTA. The IRS fact sheet says FTA stays available for these returns if they were "processed before AEP starts"; the IRS relief page says FTA applies to periods "not considered for AEP".

Original due date on or after January 1, 2027 (for example a 2026 Form 1040 due April 15, 2027), a covered form, filed within 3 years of that date, and a clean 3-year history: the IRS should not charge the penalty. If it did, contact the IRS (see below). FTA is no longer available for these returns.

Anything else, such as a return filed more than 3 years late or a penalty in the prior 3 years: ask for reasonable cause relief if something outside your control caused the problem. We have not found IRS guidance on whether FTA stays available for return types outside the AEP list (for example estate or trust returns), so ask the IRS.

How to Check Whether AEP Was Applied

Sign in to your IRS online account and look at the balance and the account transcript for the tax year. You can also request a transcript through Get Transcript.

Under the IRS procedural update, the account transcript shows transaction code TC 971 with action code 996 when AEP was applied and not later reversed. The IRS fact sheet says you get a notice saying the penalty was not assessed; under the update it may be notice CP95 for individuals or notice CP195B for businesses.

If no penalty is shown for that period, there may be nothing to do. If a penalty is listed, read the notice that charged it and go on to the next section.

If You Were Charged Anyway

If you believe you should have qualified for AEP, the IRS says to contact it. Call the phone number on your notice, have the notice and the tax year ready, and ask the IRS to review whether automatic relief should apply. If AEP was missed because of an IRS error, the procedural update says the IRS can apply it by hand.

For tax year 2024 and earlier, 2025 quarters, and transition returns that did not get AEP, ask for First-Time Abatement. You can call the number on your notice, send a written statement or file Form 843, and you do not have to use the words "First-Time Abatement". Our free First-Time Abatement letter template and phone script help you ask.

If you do not qualify for AEP or FTA, you can ask for relief for reasonable cause, for example a serious illness, a disaster or records you could not get. Our free reasonable cause letter template helps you explain what happened. If the IRS turns down your request, you can appeal the decision.

What AEP Does Not Change

AEP removes only the covered penalty. The IRS relief page says you are still liable for any unpaid tax, interest and other penalties not covered by AEP. Interest on unpaid tax runs from the original due date until you pay, compounded daily, at a rate the IRS sets each quarter.

Under AEP, the failure-to-pay penalty does not accrue and is not assessed, according to the IRS relief page. Without relief, that penalty is 0.5% of the unpaid tax for each month, up to 25% (IRC 6651(a)(2)). Interest still grows, so paying sooner still lowers what you owe. See your own numbers in our free penalty calculator.

If you cannot pay in full, compare IRS payment plans and other options before the balance grows; our payment options calculator helps. Filing and paying on time still matter: a penalty, or relief from FTA or AEP, in one year can rule out AEP for the next 3 years.