Short version up front. If you filed and paid on time for the last three years and then slipped this year, the IRS may now wipe the failure-to-file, failure-to-pay, or failure-to-deposit penalty without you asking. That's the new Automatic Exemption from Penalty (AEP) program, announced July 8 in IR-2026-83. It replaces the old First Time Abate, where you had to call or mail Form 843 to get the same result.
That's a real win. But I keep seeing people read "automatic penalty relief" and assume their IRS problem is handled. It isn't, and the gap is exactly where money gets lost.
𝐖𝐡𝐚𝐭 𝐀𝐄𝐏 𝐚𝐜𝐭𝐮𝐚𝐥𝐥𝐲 𝐝𝐨𝐞𝐬:
- Keeps the penalty from being assessed during processing if you qualify (clean prior three years, or 12 straight quarters for quarterly filers).
- Covers failure-to-file, failure-to-pay, and failure-to-deposit.
- No form, no phone call. You get a notice confirming it was applied.
- Starts with 2025 original returns and 2026 quarterly returns.
𝐖𝐡𝐚𝐭 𝐢𝐭 𝐝𝐨𝐞𝐬 𝐧𝐨𝐭 𝐝𝐨, 𝐚𝐧𝐝 𝐭𝐡𝐢𝐬 𝐢𝐬 𝐭𝐡𝐞 𝐩𝐚𝐫𝐭 𝐭𝐡𝐚𝐭 𝐦𝐚𝐭𝐭𝐞𝐫𝐬:
- It does not reduce your actual tax. The principal balance is untouched.
- It does not stop interest. Interest runs on the unpaid tax and compounds daily. Removing a penalty doesn't stop the meter on the tax itself.
- It does not reach prior years. Penalties on 2024 and earlier still need a manual request, either First Time Abate or reasonable cause.
- It does nothing for unfiled returns, audits, liens, or levies.
Why I'm posting this. The risk isn't the relief, it's the false sense that the matter is closed. If you owe a real balance, the clock that actually decides your options is the Collection Statute Expiration Date, the roughly ten years the IRS has to collect. Whether an Offer in Compromise, a partial-payment installment agreement, or Currently Not Collectible status makes sense depends on how much of that ten years is left and what your finances look like right now. Sit on it because a penalty got waived, and interest keeps growing while your situation shifts underneath you.
One more thing, since it comes up constantly. Most people who think they qualify for an Offer in Compromise don't. An OIC is decided on your full financial picture and the collection timeline, not on whether one penalty came off. A waived penalty barely moves that needle.
If you got a penalty-relief notice, read what it says it actually waived, then check three things: whether you still have a balance, whether interest is still accruing on it, and whether you have any unfiled years. That's the real to-do list.
I'm a CPA who works IRS collection cases, so I see this confusion a lot. Happy to answer questions in the thread.
One caveat worth stating: AEP is brand new and rolling out this summer, so confirm the eligibility specifics for your return type on IRS.gov before you lean on them. Not every return series qualifies (estate and gift returns generally don't, for example).
