Understanding IRS Tax Penalties
The IRS imposes two main penalties: failure-to-file (5% per month, max 25%) and failure-to-pay (0.5% per month, max 25%). When both apply simultaneously, the filing penalty is reduced by the payment penalty amount. Interest compounds daily at the federal short-term rate plus 3%.
First-Time Penalty Abatement
If you have a clean compliance history for the prior 3 years, you may qualify for first-time penalty abatement (FTA). This removes failure-to-file and failure-to-pay penalties but not interest. You can request FTA by phone or in writing.