What happens if I don't pay the penalty the IRS assessed?

If you don't pay an IRS penalty, it becomes part of your total tax balance and is subject to the same collection procedures as any other tax debt. The failure-to-pay penalty (0.5% per month) accrues on the total balance including previously assessed penalties, and interest compounds on the full amount. The IRS collection process for unpaid penalties follows the same escalation: notices, final notice of intent to levy, then enforced collection (wage garnishment, bank levy, asset seizure). Penalties cannot be separately negotiated for payment. They are part of your total tax balance when you set up an installment agreement or submit an Offer in Compromise. However, you should always consider requesting penalty abatement before paying. If you can get penalties removed through First Time Abatement or reasonable cause, the remaining balance is significantly lower. You can also request penalty abatement at any point during an installment agreement. If the IRS denies your abatement request, you can appeal the decision through the IRS Office of Appeals.