The IRS is replacing its First Time Abate (FTA) program with Automatic Exemption from Penalty (AEP), eliminating the need for many compliant taxpayers to request penalty relief. Here’s what penalties are covered, who qualifies, and what the change means for tax years 2025 and beyond.
July 15, 2026. The IRS updated its Administrative Penalty Relief webpage, corresponding with its announcement last week (IR-2026-83) that it was replacing the First Time Abate (FTA) program with a new program, Automatic Exemption from Penalty (AEP). This means taxpayers will no longer need to ask the IRS to remove a penalty. Instead, an eligible taxpayer will be exempt from the penalty. The IRS will not apply the penalty and will notify the taxpayer that the exemption applied because of the taxpayer’s compliant filing history.
What penalties are covered by the IRS’s Automatic Exemption from Penalty (AEP) program?
The IRS’s AEP program mirrors the FTA program. As with the IRS’s FTA program, AEP will apply to remove a penalty for:
- failure to file penalties (section 6651(a)(1) for individuals, section 6698(a)(1) for partnerships, and section 6699(a)(1) for S corporations)
- failure to pay penalties (section 6651(a)(2) and (a)(3))
- failure to deposit penalties (section 6656).
What taxpayers are eligible for the IRS’s Automatic Exemption from Penalty (AEP) program?
As with the IRS’s FTA program, AEP will apply to taxpayers with a history of timely filing their tax returns (including extensions) and paying tax due for the prior 3 years (or 12 months for quarterly tax returns).
When will the IRS start the Automatic Exemption from Penalty (AEP) program and what happens to the First Time Abate (FTA) program?
The IRS is expected to start the AEP program in the summer of 2026 and phase-out FTA for tax returns due on or after January 1, 2027. For tax years 2025 and 2026, both AEP and FTA could apply.
Why is the IRS changing the First Time Abate (FTA) program for the Automatic Exemption from Penalty (AEP) program?
The National Taxpayer Advocate has been advocating for years that because the FTA applies based on objective criteria that can be automated, the IRS should automatically remove penalties for taxpayers who satisfy the eligibility requirements. By automating the process, resources are reduced for both the IRS and taxpayers and the playing field is leveled for those without the knowledge and resources to get the penalties abated.
Can I still use the First Time Abate (FTA) program?
For tax years before 2027, FTA still applies. Taxpayers should contact the IRS as soon as possible to ask the IRS to remove the penalties. Calling the IRS is the fastest way to get this resolved but you can also file a claim by completing IRS Form 843, Claim for Refund and Request for Abatement.
What if I have a penalty but I am not eligible for abatement or exemption under the IRS’s FTA or AEP programs?
The IRS might remove a penalty for a few reasons:
- A taxpayer has reasonable cause for the tax reporting position. The reasonable cause provision is in section 6664(c).
- A taxpayer has substantial authority for the tax reporting position. This relief applies only to the penalty for a substantial understatement of income tax under section 6662(d).
- The IRS did not comply with procedural requirements for assessing the penalty. Most commonly, this arises with a failure to comply with the written supervisory approval requirements in section 6751(b). Another procedural issue might be that the assessment period expired before the IRS assessed the penalty.
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If you need help resolving a penalty relief with the IRS, please reach out to our team at K. Tyson Law. This article is for informational purposes only, does not establish an attorney-client relationship, and should not be construed as applying to a particular tax situation.
Written by Kim Tyson, J.D., LL.M.