By: The Black Inc Tax Services Team
It is incredibly rare for the Internal Revenue Service to announce something that actually makes a taxpayer’s life easier. However, this week, they did exactly that.
On July 8, 2026, the IRS announced they are phasing out the old, tedious “First Time Abate” process and replacing it with a brand new initiative: the Automatic Exemption from Penalty (AEP) program.
Here is what you need to know about this massive shift in how the IRS handles mistakes.
The Old Way: Begging for Relief
In the past, if you had a perfect history of paying your taxes but made a single honest mistake—like filing a return a few days late or missing a deposit—the IRS computers would immediately slap you with a penalty.
To get it removed, you had to call a practitioner priority line, wait on hold for hours, or mail a formal letter begging the IRS to grant you a “First Time Abate.” It was stressful, time-consuming, and required action on your part.
The New Way: The AEP Program
Beginning this summer (2026), the IRS computers will do the heavy lifting for you.
Under the new AEP program, if you file or pay late, the IRS system will automatically review your history. If you have a clean compliance record for the prior three years (or 12 consecutive quarters for business filers), the IRS will simply not assess the penalty.
You do not have to call them. You do not have to mail a form. The system will automatically waive the Failure-to-File, Failure-to-Pay, or Failure-to-Deposit penalties, and instead, just mail you a polite letter explaining that they gave you a pass due to your good history.
Does Every Tax Return Qualify?
No. The AEP program applies to the most common returns:
- Individuals: Form 1040
- Businesses: Forms 1120 (Corporations) and 1065 (Partnerships)
- Payroll: Forms 940, 941, 943, 944, and 945
Note: Information returns, transaction-specific returns (like Gift Tax or Estate Tax returns), and Estimated Tax penalties do not qualify for automatic relief.
A Warning from Black Inc Tax Services
While this automation is a fantastic step forward, IRS computers are notorious for making mistakes.
The AEP program is rolling out in phases, applying first to 2025 tax returns and 2026 quarterly returns. During this transition, the automated system might miss your eligibility.
Our advice: If you receive a penalty notice in the mail, do not just pay it.
Even if the computer denies you an automatic exemption, our tax professionals at Black Inc Tax Services can still fight the penalty manually by establishing “Reasonable Cause” (such as a medical emergency or natural disaster).
Never write a check to the IRS without getting a second opinion. If you receive a scary letter, contact Black Inc Tax Services today to schedule a consultation. We will review your account and ensure you aren’t paying a dime more than you legally owe.