How are penalties handled at a CDP hearing?
Some penalties can be challenged or abated at a CDP hearing; others were locked in by a prior opportunity to dispute them. Which is which depends on the notice history.
Failure-to-file and failure-to-pay penalties
On self-filed returns, these can often be addressed through reasonable cause or the first-time abatement administrative waiver, raised as part of the hearing.
Trust Fund Recovery Penalty (TFRP)
Whether you can contest the TFRP liability at CDP turns on Letter 1153, which is treated as the “prior opportunity” to dispute it. If Letter 1153 was never received, the underlying liability may still be challengeable at the hearing.
Information-return and foreign-reporting penalties
Assessable penalties without a deficiency procedure — information-return penalties under §6721/§6722, §6707A, and foreign-reporting penalties under §6038 — can often be contested at CDP precisely because there was no earlier deficiency notice.
Interest abatement
Interest may be abated under §6404 where it was attributable to unreasonable IRS error or delay in a ministerial or managerial act.