IRS introduces automatic penalty exemptions for compliant taxpayers

The Internal Revenue Service (IRS) has introduced a new program called Automatic Exemption from Penalty (AEP), announced in July 2026. This program is designed to provide administrative relief to taxpayers who have a consistent history of filing and paying their taxes on time but experience a single instance of late filing or payment.

Starting with eligible 2025 tax returns, the IRS will automatically evaluate whether a taxpayer qualifies for the exemption during the return processing stage. Unlike the previous First Time Abate (FTA) process, which required taxpayers to manually request relief, AEP functions without the need for an application or direct contact with the IRS.

While AEP may waive certain late-filing or late-payment penalties, it does not reduce the underlying tax owed, and interest will continue to accrue on unpaid balances. Notably, the program does not cover penalties related to FBARs or foreign information returns, which remains a critical distinction for Americans living abroad.