IRS Simplifies Penalty Relief: Automatic Exemption Now Available to Eligible Taxpayers

On July 8, 2026, the Internal Revenue Service announced a significant change to how it handles penalties for taxpayers who file and pay on time. The new Automatic Exemption from Penalty (AEP) program will automatically grant penalty relief to eligible taxpayers, eliminating the need for manual requests.

Who Qualifies

• Must have filed tax returns on time and paid any tax due in the three prior years (or 12 consecutive quarters for quarterly filers)
• Covers failure-to-file, failure-to-pay, and failure-to-deposit penalties
• Applies to eligible original returns beginning with tax year 2025 and 2026, as well as future tax periods

What This Means for You

If you meet the eligibility criteria, the IRS will automatically apply the relief during return processing. You will receive a notice confirming that relief was granted—no action required on your part. This streamlines a process that previously required filing a separate formal request (First Time Abate) and waiting for IRS approval.

For foreign residents and expats in the US who are building a compliance history, this automatic approach reduces friction during tax administration. If you've consistently met your filing and payment deadlines over the past three years, you're protected from unexpected penalty assessments even if you inadvertently miss a deadline. Note that certain returns—such as estate tax (Form 706) and gift tax (Form 709) returns—are not eligible for AEP. Check with a tax professional if you file specialized returns.

Sources

• Internal Revenue Service — IRS simplifies penalty relief, introduces automatic process for eligible taxpayers