Which is worse, the failure-to-file or the failure-to-pay penalty?

Failure-to-file is far more expensive — 5% of the unpaid tax per month, up to 25%, versus 0.5% per month for failure-to-pay. That's a 10-to-1 difference. The lesson is to always file on time even if you can't pay, because filing stops the larger penalty from accruing while you arrange to pay the balance.

What is first-time penalty abatement?

First-Time Abatement (FTA) is an administrative waiver the IRS grants if you have a clean compliance history — generally no penalties in the prior three years, all required returns filed, and any tax due paid or on a payment plan. It removes failure-to-file, failure-to-pay, and failure-to-deposit penalties, and you can often request it with a single phone call.

What counts as reasonable cause for penalty relief?

Reasonable cause means you exercised ordinary business care and prudence but still couldn't comply due to circumstances beyond your control — serious illness, a death in the family, a natural disaster, records destroyed, or reliance on incorrect professional advice. A lack of funds by itself is generally not reasonable cause, though the reason you lacked funds might be.

How do I request penalty abatement?

For first-time abatement, calling the number on your IRS notice is often the fastest route. For reasonable cause, you submit a written explanation with supporting documentation, or file Form 843, Claim for Refund and Request for Abatement. If a request is denied, you have appeal rights — many penalties are removed on appeal that were denied on first pass.

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Tax Compliance

IRS Penalties Explained — and How First-Time Abatement Removes Them

The four penalties that hit small businesses and individuals — failure-to-file, failure-to-pay, estimated-tax, and accuracy — plus the two relief programs that get them removed: first-time abatement and reasonable cause.

SMAART Tax Team

March 9, 2026

6 min read

|Reviewed by Lisa Terrell, Enrolled Agent