T.C. Memo. 2006-216
UNITED STATES TAX COURT
BARRY AND SHERRY BLONDHEIM, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 15549-05L. Filed October 10, 2006.
Terri A. Merriam, Jaret R. Coles, Asher B. Bearman, and
Jennifer A. Gellner, for petitioners.
Thomas N. Tomashek and Gregory M. Hahn, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
LARO, Judge: Petitioners petitioned the Court under section
6330(d) to review the determination of respondent’s Office of
Appeals (Appeals) sustaining a proposed levy relating to $298,003
of Federal income taxes owed by petitioners for 1981 through
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1986.1 Petitioners argue that Appeals was required to accept
their offer of $83,213 to compromise $298,003 of Federal income
tax liability that respondent’s records reported were due from
them for 1981 through 1986. We decide whether Appeals abused its
discretion in rejecting that offer.2 We hold it did not.
FINDINGS OF FACT
The parties filed with the Court stipulations of fact and
accompanying exhibits. The stipulated facts are found
accordingly. When the petition was filed, petitioners resided in
Kennewick, Washington.
Beginning in 1984, petitioners’ Federal income tax returns
claimed losses and credits from their involvement in a
partnership organized and operated by Walter J. Hoyt, III (Hoyt).
The partnership was called Shorthorn Genetic Engineering 1984-3.
Hoyt was the partnership’s general partner and tax matters
partner, and the partnership was subject to the unified audit and
litigation procedures of the Tax Equity and Fiscal Responsibility
1
Unless otherwise indicated, section references are to the
applicable versions of the Internal Revenue Code. Dollar amounts
are rounded.
2
Petitioners also dispute respondent’s determination that
they are liable for increased interest under sec. 6621(c). This
interest relates to deficiencies attributable to “computational
adjustments”, see secs. 6230(a)(1) and 6231(a)(6), made following
the Court’s decision in Shorthorn Genetic Engg. 1982-2, Ltd. v.
Commissioner, T.C. Memo. 1996-515. As to this dispute, the
parties have agreed to be bound by a final decision in Ertz v.
Commissioner, docket No. 20336-04L, which involves a similar
issue.
- 3 -
Act of 1982, Pub. L. 97-248, sec. 402(a), 96 Stat. 648. Hoyt was
convicted on criminal charges relating to the promotion of this
and other partnerships.
Petitioners’ claim to the losses and credits resulted in the
underreporting of their 1981 through 1986 taxable income. On
December 16, 2003, respondent mailed to petitioners a Letter
1058, Final Notice of Intent to Levy and Notice of Your Right to
a Hearing. The notice informed petitioners that respondent
proposed to levy on their property to collect Federal income
taxes that they owed for 1981 through 1986. The notice advised
petitioners that they were entitled to a hearing with Appeals to
review the propriety of the proposed levy.
On January 14, 2004, petitioners asked Appeals for the
referenced hearing. On June 8, 2005, Linda Cochran (Cochran), a
settlement officer in Appeals, held the hearing with petitioners’
counsel. Cochran and petitioners’ counsel discussed petitioners’
intent to offer to compromise their 1981 through 1986 Federal
income tax liability to promote effective tax administration.
Petitioners contended that Appeals should accept their offer as a
matter of equity and public policy. Petitioners stated that it
took a long time to resolve the Hoyt partnership cases and noted
that Hoyt had been convicted on the criminal charges.
On June 8, 2005, petitioners tendered to Cochran on Form
656, Offer in Compromise, a written offer to pay $83,213 to
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compromise their reported $298,003 liability. The offer was
limited to a claim of effective tax administration because
petitioners had sufficient assets to pay their tax liability in
full. Petitioners supplemented their offer with a completed Form
433-A, Collection Information Statement for Wage Earners and
Self-Employed Individuals, four letters totaling approximately 65
pages, and volumes of documents. The Form 433-A reported that
petitioners owned assets with a total current value of
$1,388,757, inclusive of the following:3
Assets Current value
Cash in accounts $46,441
Cash value of life insurance 12,707
Pensions & IRA 491,121
Vehicles:
2000 Cadillac Escalade 11,975
1984 Subaru Brat 138
1
Real estate (residence) 136,800
Real estate (Oregon property) 96,693
Real estate (other properties) 588,882
Furniture/personal effects 4,000
1,388,757
1
Petitioners reported on Form 433-A that this
figure represents 80 percent of their home’s appraised
value.
The Form 433-A also reported that petitioners owed $9,131 on the
Cadillac Escalade, $103,482 on their residence, $166,041 on their
various other properties, and had taken a $10,000 loan against
3
Form 433-A states that each asset reported on the form
should be valued at its “Current value”, defined on the form as
“the amount you could sell the asset for today”.
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one of their pension plans. The Form 433-A reported the
following monthly items of income and expense:
Items of income Amount
Husband’s wages $3,700
Wife’s wages 2,500
Rental income 4,434
10,634
Items of expense Amount
Food, clothing, and miscellaneous $1,280
Housing and utilities 1,953
Transportation 596
Medical expenses 669
Taxes 2,250
6,748
Cochran determined that petitioners’ net realizable equity
in their cash was the $46,441 reported in their bank accounts and
that petitioners’ net realizable equity in their life insurance,
Subaru Brat, and Oregon property was the same as the reported
values.4 Cochran noted the various encumbrances reported by
petitioners, and in the case of the furniture/personal effects,
allowed a $7,200 exemption for their entire value under section
6334(a)(2).5 She summarized petitioners’ assets and liabilities
as follows:
4
Cochran was told by petitioners that they had ascertained
the value of each vehicle by using its trade-in value and
considering its condition to be “fair.”
5
Whereas sec. 6334(a)(2) limits this exemption to $6,250,
Cochran does not explain in the notice of determination why she
allowed petitioners the greater amount.
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Fair Quick Net
market sale Encumbrance realizable
Assets value value or exemption equity
Cash $46,441 -- -- $46,441
Cash value of life insurance 12,707 -- -- 12,707
Retirement accounts 491,121 -- $10,000 481,121
Vehicles:
1
1984 Subaru Brat 134 $107 -- 107
2000 Cadillac Escalade 11,975 9,580 9,131 449
Real estate (residence) 171,000 –- 103,482 67,518
Real estate (Oregon property) 96,693 –- -- 96,693
Furniture/personal effects 4,000 –- 7,200 0
834,071 9,687 129,813 705,036
1
Petitioners had listed the value of this vehicle
as $138.
In her comments following this summary, Cochran stated that
she had not taken into account the value of petitioners’ S
corporation, Bear Mart Auto Sales, Inc.6 She also did not
include petitioners’ real estate holdings, reported as having a
current value of $588,882.
The only adjustment that Cochran made to petitioners’
claimed expenses was that she allowed $1,093 for housing instead
of the $1,953 that petitioners had claimed. Cochran stated that
she made this adjustment in accordance with current local
guidelines and that she considered petitioners’ particular
circumstances, but they did not warrant allowing the higher
figure submitted by petitioners.
Cochran determined that petitioners’ net realizable equity
in their assets was $705,036 and that they had a monthly
6
Petitioners had completed and submitted to Cochran a Form
433-B, Collection Information Statement for Businesses, which
listed the assets and liabilities of their S corporation.
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disposable income of $4,746. She calculated that petitioners
could pay $227,808 from their future income.7 In sum, Cochran
concluded, petitioners’ net realizable equity in assets and
future income equaled $932,844.
On July 22, 2005, Appeals issued petitioners a notice of
determination sustaining the proposed levy. The notice concludes
that petitioners’ $83,213 offer-in-compromise is not an
appropriate collection alternative to the proposed levy. The
notice, citing Internal Revenue Manual (IRM) sections 5.8.11.2.1
and 5.8.11.2.2, states that petitioners’ offer does not meet the
Commissioner’s guidelines for consideration as an offer-in-
compromise to promote effective tax administration on the basis
of economic hardship or equity and public policy. Cochran noted
that since petitioners had not specified the basis on which they
were making their offer, she considered it under both economic
hardship and equity and public policy grounds.
As to petitioners’ offer-in-compromise to promote effective
tax administration due to economic hardship, the notice states:
Considered under economic hardship, the taxpayers have
the ability to pay all amounts owed from either their
assets or their income stream and still have assets and
an income stream remaining worth over $630,000. The
amount being offered by the taxpayers represents 8% of
the taxpayers’ Reasonable Collection Potential (RCP).
7
Cochran arrived at $227,808 by multiplying petitioners’
monthly disposable income of $4,746 by a factor of 48.
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The taxpayers’ circumstances were considered, but the
taxpayers would have substantial assets and income
stream remaining ($630,000+) to cover their living and
medical expenses. As such, the taxpayers failed to
document economic hardship in accordance with Internal
Revenue Manual 5.8.11.2.1.
As to petitioners’ offer-in-compromise to promote effective tax
administration based on equity and public policy, the notice
states: “When considered under public policy or equity grounds,
the taxpayers’ Effective Tax Administration offer proposal fails
to meet the criteria for such consideration under Internal
Revenue Manual 5.8.11.2.2 * * * [and], therefore, cannot be
considered.” The notice further states as to Cochran’s balancing
of efficient collection with the legitimate concerns of taxpayers
that
the Settlement Officer has evaluated the taxpayers’
$83,213 offer to compromise the underlying liabilities
as a collection alternative to the proposed levy
action. Based on that evaluation, the taxpayers’ offer
of $83,213 could not be recommended for acceptance, and
therefore cannot be considered as a collection
alternative.
In all other respects, the proposed levy action
regarding the taxpayers represents the only efficient
means for collection of the liabilities at issue in
this case.
The notice states that petitioners have neither offered an
argument nor cited any authority to permit Appeals to deviate
from the provisions of the IRM.
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OPINION
This case is another in a long list of cases brought in this
Court involving respondent’s proposal to levy on the assets of a
partner in a Hoyt partnership to collect Federal income taxes
attributable to the partner’s participation in the partnership.
Petitioners argue that Appeals was required to let them pay
$83,213 to compromise a $298,003 Federal income tax liability for
1981 through 1986. Where an underlying tax liability is not at
issue in a case invoking our jurisdiction under section 6330(d),
we review the determination of Appeals for abuse of discretion.
See Sego v. Commissioner, 114 T.C. 604, 610 (2000); see also
Clayton v. Commissioner, T.C. Memo. 2006-188; Barnes v.
Commissioner, T.C. Memo. 2006-150. We reject the determination
of Appeals only if the determination was arbitrary, capricious,
or without sound basis in fact or law. See Cox v. Commissioner,
126 T.C. 237, 255 (2006); Murphy v. Commissioner, 125 T.C. 301,
308, 320 (2005).
Where, as here, we decide the propriety of Appeals’s
rejection of an offer-in-compromise, we review the reasoning
underlying that rejection to decide whether the rejection was
arbitrary, capricious, or without sound basis in fact or law.
We do not substitute our judgment for that of Appeals, and we do
not decide independently the amount that we believe would be an
acceptable offer-in-compromise. See Murphy v. Commissioner,
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supra at 320; see also Clayton v. Commissioner, supra; Barnes v.
Commissioner, supra; Fowler v. Commissioner, T.C. Memo. 2004-163;
Fargo v. Commissioner, T.C. Memo. 2004-13, affd. 447 F.3d 706
(9th Cir. 2006). Nor do we usually consider arguments, issues,
or other matters raised for the first time at trial, but we limit
ourselves to matter brought to the attention of Appeals.
See Murphy v. Commissioner, supra at 308; Magana v. Commissioner,
118 T.C. 488, 493 (2002). “[E]vidence that * * * [a taxpayer]
might have presented at the section 6330 hearing (but chose not
to) is not admissible in a trial conducted pursuant to section
6330(d)(1) because it is not relevant to the question of whether
the Appeals officer abused her discretion.” Murphy v.
Commissioner, supra at 315.8
8
In Murphy v. Commissioner, 125 T.C. 301 (2005), the Court
declined to include in the record external evidence relating to
facts not presented to Appeals. The Court distinguished
Robinette v. Commissioner, 123 T.C. 85 (2004), revd. 439 F.3d 455
(8th Cir. 2006), and held that the external evidence was
inadmissible in that it was not relevant to the issue of whether
Appeals abused its discretion. In a memorandum that petitioners
filed with the Court on Apr. 13, 2006, pursuant to an order of
the Court directing petitioners to explain the relevancy of any
external evidence that they desired to include in the record of
this case, petitioners made no claim that they had offered any of
the external evidence to Cochran. Instead, as we read
petitioners’ memorandum in the light of the record as a whole,
petitioners wanted to include the external evidence in the record
of this case to prove that Cochran abused her discretion by not
considering facts and documents that they had consciously decided
not to give to her. Consistent with Murphy v. Commissioner,
supra, we sustained respondent’s relevancy objections to the
external evidence. Accord Clayton v. Commissioner, T.C. Memo.
2006-188; Barnes v. Commissioner, T.C. Memo. 2006-150.
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Section 6330(c)(2)(A)(iii) allows a taxpayer to offer to
compromise a Federal tax debt as a collection alternative to a
proposed levy. Section 7122(c) authorizes the Commissioner to
prescribe guidelines to determine when a taxpayer’s offer-in-
compromise should be accepted. The applicable regulations,
section 301.7122-1(b), Proced. & Admin. Regs., list three grounds
on which the Commissioner may accept an offer-in-compromise of a
Federal tax debt. These grounds are “Doubt as to liability”,
“Doubt as to collectibility”, and to “Promote effective tax
administration”. Sec. 301.7122-1(b)(1), (2), and (3), Proced. &
Admin. Regs. Petitioners reported on their Form 433-A that they
had assets worth $1,388,757. Cochran determined that
petitioners’ reasonable collection potential (taking into account
their assets as well as future income) was $932,844. Petitioners
can afford to pay their $298,003 tax liability in full and do not
argue that the liability is in doubt. They seek to qualify for
an offer-in-compromise to promote effective tax administration.
See sec. 301.7122-1(b)(3), Proced. & Admin. Regs.; cf. Fargo v.
Commissioner, 447 F.3d 706 (9th Cir. 2006) (taxpayers made an
offer-in-compromise to promote effective tax administration where
they had sufficient assets to pay their tax liability in full).
Petitioners argue that respondent was required to compromise
their tax liability to promote effective tax administration. The
Commissioner may compromise a tax liability to promote effective
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tax administration when collection of the full liability will
create economic hardship and the compromise would not undermine
compliance with the tax laws by taxpayers in general. See sec.
301.7122-1(b)(3)(i), (iii), Proced. & Admin. Regs. If a taxpayer
does not qualify for effective tax administration compromise on
grounds of economic hardship, the regulations also allow the
Commissioner to compromise a tax liability to promote effective
tax administration when the taxpayer identifies compelling
considerations of public policy or equity. See sec. 301.7122-
1(b)(3)(ii), Proced. & Admin. Regs.
Cochran considered all of the evidence submitted to her by
petitioners and applied the guidelines for evaluating an
offer-in-compromise to promote effective tax administration.
Although petitioners did not specifically state on which basis
they were submitting their effective tax administration offer-in-
compromise, Cochran considered it under both economic hardship
and public policy and equity grounds. Cochran determined that
petitioners’ offer was unacceptable because they had not
demonstrated that they would suffer economic hardship and public
policy and equity reasons did not weigh in favor of accepting
their offer. Cochran’s determination to reject petitioners’
offer-in-compromise was not arbitrary, capricious, or without a
sound basis in fact or law, and it was not abusive or unfair to
petitioners. Cochran’s determination was based on a reasonable
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application of the guidelines, which we decline to second-guess.
See Speltz v. Commissioner, 124 T.C. 165 (2005), affd. 454 F.3d
782 (8th Cir. 2006); Clayton v. Commissioner, supra; Barnes v.
Commissioner, T.C. Memo. 2006-150.
Petitioners make seven arguments in advocating a contrary
result. First, petitioners argue that the Court lacks
jurisdiction to review the rejection of their offer-in-
compromise. Petitioners allege that Hoyt had a conflict of
interest that prevented him from extending the periods of
limitation for the partnerships in which petitioners were
partners. Petitioners conclude that any consents signed by Hoyt
to extend the periods of limitation were invalid, which in turn
means that the Court lacks jurisdiction because the applicable
periods of limitation have otherwise expired.
Petitioners’ challenge to this Court’s jurisdiction is
groundless, frivolous, and unavailing. It is well settled that
the expiration of the period of limitation is an affirmative
defense and not a factor of this Court’s jurisdiction. See Day
v. McDonough, 547 U.S. , 126 S. Ct. 1675, 1681 (2006) (“A
statute of limitations defense * * * is not ‘jurisdictional’”);
Kontrick v. Ryan, 540 U.S. 443, 458 (2004) (“Time bars * * *
generally must be raised in an answer or responsive pleading.”);
see also Davenport Recycling Associates v. Commissioner, 220 F.3d
1255, 1259 (11th Cir. 2000), affg. T.C. Memo. 1998-347; Chimblo
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v. Commissioner, 177 F.3d 119, 125 (2d Cir. 1999), affg. T.C.
Memo. 1997-535; Columbia Bldg., Ltd. v. Commissioner, 98 T.C.
607, 611 (1992); Robinson v. Commissioner, 57 T.C. 735, 737
(1972). Where, as here, the claim of a time bar relates to items
of a partnership, the claim must be made in the partnership
proceeding and may not be considered at a proceeding involving
the personal income tax liability of one or more of the partners
of the partnership. See Davenport Recycling Associates v.
Commissioner, supra at 1259-1260; Chimblo v. Commissioner, supra
at 125; Kaplan v. United States, 133 F.3d 469, 473 (7th Cir.
1998).
Second, petitioners argue that Cochran’s rejection of their
offer-in-compromise conflicts with the congressional committee
reports underlying the enactment of section 7122. According to
petitioners, their case is a “longstanding” case, and those
reports require that respondent resolve such cases by forgiving
interest and penalties that otherwise apply. We disagree with
petitioners’ reading and application of the legislative history
underlying section 7122. Petitioners’ argument on this point is
essentially the same argument that was considered and rejected by
the Court of Appeals for the Ninth Circuit in Fargo v.
Commissioner, 447 F.3d at 711-712. We do likewise here for the
same reasons stated in that opinion. We add that petitioners’
counsel participated in the appeal in Fargo v. Commissioner,
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supra, as counsel for the amici. While petitioners in their
brief suggest that the Court of Appeals for the Ninth Circuit
knowingly wrote its opinion in Fargo in such a way as to
distinguish that case from the cases of counsel’s similarly
situated clients (e.g., petitioners), and otherwise to allow
those clients to receive an abatement of their liability
attributable to partnerships such as those here, we do not read
the opinion of the Court of Appeals for the Ninth Circuit in
Fargo to support that conclusion.
Third, petitioners argue that Cochran inadequately
considered their unique facts and circumstances. We disagree.
Cochran reviewed and considered all information given to her by
petitioners. On the basis of the facts and circumstances of
petitioners’ case as they had been presented to her, Cochran
determined that petitioners’ offer did not meet the applicable
guidelines for acceptance of an offer-in-compromise to promote
effective tax administration based on economic hardship or public
policy or equity grounds. We find no abuse of discretion in that
determination. Nor do we find that Cochran inadequately
considered the information actually given to her by petitioners.
Cochran allowed the full amount of medical expenses that
petitioners submitted on their Form 433-A. While petitioners
claimed during the administrative hearing that they would incur
increased medical expenses in the future, they provided no
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substantiation of these costs to Cochran. Because petitioners
did not submit any documentation of future medical expenses, we
find that Cochran did not abuse her discretion in not allowing
future medical costs that are entirely speculative. See Fargo v.
Commissioner, 447 F.3d at 710 (it is not an abuse of discretion
for Appeals to disregard claimed medical expenses that are
speculative or not related to the taxpayer); see also Clayton v.
Commissioner, supra; Barnes v. Commissioner, supra.
Fourth, petitioners argue that Cochran did not adequately
take into account the economic hardship they claim they will
suffer by having to pay more than $83,213 of their tax liability.
We disagree. Section 301.6343-1(b)(4)(i), Proced. & Admin.
Regs., states that economic hardship occurs when a taxpayer is
“unable to pay his or her reasonable basic living expenses.”
Section 301.7122-1(c)(3), Proced. & Admin. Regs., sets forth
factors to consider in evaluating whether collection of a tax
liability would cause economic hardship, as well as some
illustrative examples. One of the examples involves a taxpayer
who provides fulltime care to a dependent child with a serious
longterm illness. A second example involves a taxpayer who would
lack adequate means to pay his basic living expenses were his
only asset to be liquidated. A third example involves a disabled
taxpayer with a fixed income and a modest home specially equipped
to accommodate his disability, and who is unable to borrow
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against his home because of his disability. See sec.
301.7122-1(c)(3)(iii), Examples (1), (2), and (3), Proced. &
Admin. Regs. None of these examples bears any resemblance to
this case but instead “describe more dire circumstances”. Speltz
v. Commissioner, 454 F.3d at 786.
Nor have petitioners articulated with any specificity the
purported economic hardship they will suffer if they are not
allowed to compromise their liability for $83,213. Petitioners
have given us no reason to disagree with the essence of Cochran’s
determination that petitioners’ health does not render them
“incapable of earning a living”, nor have we reason to conclude
that petitioners’ “financial resources will be exhausted
providing for care and support during the course of the
condition”.9 Sec. 301.7122-1(c)(3)(i)(A), Proced. & Admin. Regs.
We also are mindful that any decision by Cochran to accept
petitioners’ offer-in-compromise to promote effective tax
administration must be viewed against the backdrop of section
301.7122-1(b)(3)(iii), Proced. & Admin. Regs. That section
requires that Cochran deny petitioners’ offer if her acceptance
of it would undermine voluntary compliance with tax laws by
9
We also note that the Court of Appeals for the Ninth
Circuit in Fargo v. Commissioner, 447 F.3d 706, 710 (9th Cir.
2006), affg. T.C. Memo. 2004-13, dismissed a similar claim of
economic hardship advanced by the taxpayers there. Petitioners
here, like the taxpayers in Fargo, have substantial assets and
future income potential and can afford to pay their tax liability
in full.
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taxpayers in general. Thus, even if we were to assume arguendo
that petitioners would suffer economic hardship, a finding that
we emphasize we do not make, we would not find that Cochran’s
rejection of petitioners’ offer was an abuse of discretion
because we conclude below (in our discussion of petitioners’
fifth argument) that her acceptance of that offer would have
undermined voluntary compliance with tax laws by taxpayers in
general. The prospect that acceptance of an offer will undermine
compliance with the tax laws militates against its acceptance.
See Rev. Proc. 2003-71, 2003-2 C.B. 517; IRM sec. 5.8.11.2.2; see
also Clayton v. Commissioner, T.C. Memo. 2006-188; Barnes v.
Commissioner, T.C. Memo. 2006-150.
Fifth, petitioners argue that public policy demands that
their offer-in-compromise be accepted because they were victims
of fraud. We disagree. While the regulations do not set forth a
specific standard for evaluating an offer-in-compromise based on
claims of public policy or equity, the regulations contain two
illustrative examples. See sec. 301.7122-1(c)(3)(iv), Examples
(1) and (2), Proced. & Admin. Regs. The first example describes
a taxpayer who is seriously ill and unable to file income tax
returns for several years. The second example describes a
taxpayer who received erroneous advice from the Commissioner as
to the tax effect of the taxpayer’s actions. Neither example
bears any resemblance to this case. See Speltz v. Commissioner,
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454 F.3d at 786. Unlike the exceptional circumstances
exemplified in the regulations, petitioners’ situation is neither
unique nor exceptional in that petitioners’ situation mirrors
that of numerous taxpayers who claimed tax shelter deductions in
the 1980s and 1990s, obtained the tax advantages, promptly forgot
about their “investment”, and now realize that paying their taxes
may require a change of lifestyle.10 See Clayton v.
Commissioner, supra; Barnes v. Commissioner, supra.
We also believe that compromising petitioners’ case on
grounds of public policy or equity would not promote effective
tax administration. While petitioners portray themselves as
victims of Hoyt’s alleged fraud and respondent’s alleged delay in
dealing with Hoyt, they take no responsibility for their tax
predicament. We cannot agree that acceptance by respondent of
petitioners’ $83,213 offer to satisfy their $298,003 tax
liability would enhance voluntary compliance by other taxpayers.
10
Of course, the examples in the regulations are not meant
to be exhaustive, and petitioners’ situation is not identical to
that of the taxpayers in Fargo v. Commissioner, 447 F.3d at 714,
regarding whom the Court of Appeals for the Ninth Circuit noted
that “no evidence was presented to suggest that Taxpayers were
the subject of fraud or deception”. Such considerations,
however, have not kept this Court from finding investors in
Hoyt’s shelters to be culpable of negligence, most recently in
Keller v. Commissioner, T.C. Memo. 2006-131, nor prevented the
Courts of Appeals for the Sixth and Tenth Circuits from affirming
our decisions to that effect in Mortensen v. Commissioner, 440
F.3d 375 (6th Cir. 2006), affg. T.C. Memo. 2004-279, and Van
Scoten v. Commissioner, 439 F.3d 1243 (10th Cir. 2006), affg.
T.C. Memo. 2004-275.
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A compromise on that basis would place the Government in the
unenviable role of an insurer against poor business decisions by
taxpayers, reducing the incentive for taxpayers to investigate
thoroughly the consequences of transactions into which they
enter. It would be particularly inappropriate for the Government
to play that role here, where the transaction at issue involves a
tax shelter. Reducing the risks of participating in tax shelters
would encourage more taxpayers to run those risks, thus
undermining rather than enhancing compliance with the tax laws.11
See Clayton v. Commissioner, supra; Barnes v. Commissioner,
supra.
Sixth, petitioners argue that Cochran failed to balance
efficient collection with the legitimate concern that collection
be no more intrusive than necessary. We disagree. Cochran
thoroughly considered this balancing issue on the basis of the
information and proposed collection alternative given to her by
petitioners. She concluded that “the proposed levy action
11
Nor does the fact that petitioners’ case may be
“longstanding” overcome the detrimental impact on voluntary
compliance that could result from respondent’s accepting
petitioners’ offer-in-compromise. An example in IRM sec.
5.8.11.2.2 implicitly addresses the “longstanding” issue. There,
the taxpayer invested in a tax shelter in 1983, thereby incurring
tax liabilities for 1981 through 1983. He failed to accept a
settlement offer by respondent that would have eliminated a
substantial portion of his interest and penalties. Although the
example, which is similar to petitioners’ case in several
respects, would qualify as a “longstanding” case by petitioners’
standards, the offer was not acceptable because acceptance of it
would undermine compliance with the tax laws.
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regarding the taxpayers represents the only efficient means for
collection of the liabilities at issue in this case”. While
petitioners assert that Cochran did not consider all of the facts
and circumstances of this case, “including whether the
circumstances of a particular case warrant acceptance of an
amount that might not otherwise be acceptable under the
Secretary’s policies and procedures”, sec. 301.7122-1(c)(1),
Proced. & Admin. Regs., we find to the contrary. Cochran
thoroughly considered petitioners’ arguments for accepting their
offer-in-compromise, and she rejected the offer only after
concluding that petitioners could pay much more of their tax
liability than the $83,213 they offered. Cf. IRM sec.
5.8.11.2.1(11) (“When hardship criteria are identified but the
taxpayer does not offer an acceptable amount, the offer should
not be recommended for acceptance”).
Seventh, petitioners argue that Cochran inappropriately
failed to consider whether they qualified for an abatement of
interest for reasons other than those described in section
6404(e). We disagree. We find nothing to suggest that Cochran
believed that petitioners’ sole remedy for interest abatement in
this case rested on the rules of section 6404(e). In fact,
regardless of the rules of section 6404(e), Cochran obviously
would have abated interest in this case had she agreed to let
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petitioners compromise their $298,003 liability by paying less
than the amount of interest included within that liability.
We hold that Appeals did not abuse its discretion in
rejecting petitioners’ $83,213 offer-in-compromise. In so
holding, we express no opinion as to the amount of any compromise
that petitioners could or should be required to pay, or that
respondent is required to accept. The only issue before us is
whether Appeals abused its discretion in refusing to accept
petitioners' specific offer-in-compromise in the amount of
$83,213. See Speltz v. Commissioner, 124 T.C. at 179-180. We
have considered all arguments made by petitioners for a contrary
holding and have found those arguments not discussed herein to be
irrelevant and/or without merit.
An appropriate order will
be issued.