IRS Launches Automatic Penalty Relief: Clean-Compliance Filers Need Not Apply

Summary

On July 8, 2026, the IRS announced a new Automatic Exemption from Penalty (AEP) program that replaces the long-standing First Time Abate (FTA) process. Eligible taxpayers — those with a clean three-year (or 12-consecutive-quarter) record of timely filing and payment — will automatically receive relief from failure-to-file, failure-to-pay, and failure-to-deposit penalties during processing, with no application required. The program covers original returns beginning with tax year 2025. The IRS will phase in AEP starting summer 2026.

Source: IRS — IRS simplifies penalty relief, introduces automatic process for eligible taxpayers — https://www.irs.gov/newsroom/irs-simplifies-penalty-relief-introduces-automatic-process-for-eligible-taxpayers

Source: Journal of Accountancy — Eligible taxpayers to get automatic IRS penalty relief — https://www.journalofaccountancy.com/news/2026/jul/eligible-taxpayers-to-get-automatic-irs-penalty-relief/

Sources

Our Take

This is a meaningful simplification for cross-border Canada/US filers. US citizens and green card holders living in Canada who inadvertently miss a filing deadline have historically needed to request FTA relief manually — a process that required correspondence and time. Under AEP, the IRS will compare your compliance history automatically and waive eligible penalties without any action on your part. However, note that AEP does not apply to information returns (e.g., 1099 series) or estate/gift tax returns. For dual filers who maintain a good compliance record, this automation removes one more administrative headache from the cross-border filing experience.

Disclaimer: This article is general information only and does not constitute tax advice; it should not substitute professional tax counsel. Please consult a licensed CPA for advice specific to your situation.