                       T.C. Memo. 2008-6



                      UNITED STATES TAX COURT



            ROBERT AND GRACE BERGEVIN, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 6678-06L.             Filed January 14, 2008.


     Terri Ann Merriam, Jaret R. Coles, Brian Gary Isaacson, and

Marlyn P. Chu, for petitioners.

     Gregory M. Hahn and Danae M. Rawson, for respondent.



                        MEMORANDUM OPINION


     COHEN, Judge:   This proceeding was commenced in response to

a Notice of Determination Concerning Collection Action Under

Section 6330 sent to each petitioner with respect to their income

tax liabilities for 1981, 1982, 1983, 1984, and 1986.    Unless
                                 - 2 -

otherwise indicated, all section references are to the Internal

Revenue Code, as amended.

     The liabilities arose out of petitioners’ participation in a

so-called Hoyt cattle venture.    Petitioners acknowledge that this

case is similar to at least 16 other cases involving Hoyt cattle

breeding partnerships that are currently on appeal to the Court

of Appeals for the Ninth Circuit, including Ertz v. Commissioner,

T.C. Memo. 2007-15.   Petitioners offered to stipulate to be bound

by the outcome of the Ertz case or, in the alternative,

petitioners requested that this case be continued pending action

by the Court of Appeals in Ertz and the cases consolidated with

it on appeal.   Respondent declined the stipulation to be bound

and objected to the continuance.

     This case has certain “procedural” differences from Ertz and

the other cases.   Petitioners resided in Minnesota at the time

that their petition was filed, and, absent stipulation to the

contrary, our decision in this case is not appealable to the

Court of Appeals for the Ninth Circuit.   Also, unlike the other

cases, there is no section 6621(c) issue in this case, so that

the jurisdictional question raised in Ertz is not involved in

this case.   Third, the administrative record in this case was

lost and has been recreated by respondent.   Thus, testimony of

the Appeals officer who conducted the hearing under section 6330

was taken, notwithstanding respondent’s objection that review
                                - 3 -

should be limited to the administrative record under the Court of

Appeals opinion in Robinette v. Commissioner, 439 F.3d 455 (8th

Cir. 2006), revg. 123 T.C. 85 (2004).     In view of the years for

which the interest on the underlying liabilities is accruing, we

have decided to proceed with our opinion in this case.     The issue

for decision is whether it was an abuse of discretion to refuse

petitioners’ offer-in-compromise and to determine that collection

efforts should proceed.

                             Background

     Although the record is voluminous, we do not here recount in

detail the background of the Hoyt partnerships; that has been

restated many times.    We simply outline those facts necessary to

an understanding of petitioners’ arguments to the settlement

officer who conducted the section 6330 hearing and to the Court.

Walter J. Hoyt III (Hoyt or Jay Hoyt)

     Many facts and documents have been stipulated in six

separate stipulations filed in this case, which are incorporated

in our findings by this reference.      Background facts concerning

the venture in which petitioners invested are described in

“narrative stipulations” relating to Hoyt.     From about 1971

through 1998, Hoyt organized and promoted to thousands of

investors more than 100 cattle breeding partnerships and some

sheep partnerships.    The partnerships were all organized and

operated in essentially the same manner.     In addition, all of the
                               - 4 -

Hoyt organization investor partnerships were marketed and

promoted in an identical fashion.   As the general partner

managing each partnership, Hoyt was responsible for and directed

the preparation of the tax returns of each partnership, and he

typically signed and filed each return.    Hoyt used his status as

an enrolled agent with the Internal Revenue Service (IRS) to

promote the partnerships.

     The Hoyt partnerships were ultimately audited as “a tax

shelter project”.   Most of the partnerships were audited under

the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA),

Pub. L. 97-248, section 402(a), 96 Stat. 648.    See secs. 6221-

6231.   Hoyt acted as the tax matters partner (TMP) during the

audit and until his removal by this Court in certain cases,

commencing in 2000.

     On or around April 23, 1984, a criminal investigation

reference concerning Hoyt was made.    On April 21, 1986, a

recommendation for prosecution was made.    Those recommendations,

however, did not lead to prosecution.    On or about July 28, 1989,

a second reference for criminal investigation was made.    In 1990,

a grand jury investigation of Hoyt concluded without an

indictment.   Hoyt’s status as an enrolled agent was revoked in

1998.

     A criminal indictment was filed on June 2, 1999, and Hoyt

was convicted of various criminal charges on February 12, 2001.
                               - 5 -

The criminal charges included fraud, mail fraud, bankruptcy

fraud, and money laundering.   The essence of the criminal charges

was that Hoyt had victimized approximately 4,000 investors,

including petitioners.

Petitioners

     On their income tax returns beginning in 1984, petitioners

claimed losses and credits from their involvement in a cattle

investor partnership organized and operated by Hoyt and

identified as Shorthorn Genetic Engineering 1984-4 Ltd.

Petitioners also claimed that losses related to the Hoyt

partnership carried back to 1981, 1982, and 1983.   Additional

deductions were claimed on petitioners’ returns for 1985 and

1986.   As a result of delays caused by Hoyt’s dealings with the

IRS and the various investigations of Hoyt, the taxes for the

years in issue were not assessed until sometime in 1998.

Section 6330 Proceedings

     On March 21, 2005, the IRS sent to each petitioner a

separate Final Notice–-Notice Of Intent To Levy And Notice Of

Your Right To A Hearing for each of the years 1981, 1982, 1983,

1984, and 1986.   A Request for a Collection Due Process Hearing

was filed on behalf of petitioners on or about April 7, 2005.

     Petitioners’ request for a section 6330 hearing included the

following arguments:

     Mr. and Mrs. Bergevin believe that the Notice of Intent
     to Levy is improper for the following reasons:
                          - 6 -

1.   The Equitable Provisions of RRA 1998 Concerning
     Offers in Compromise

The Conference Report of RRA 1998 directs that “the IRS
[in formulating these rules] take into account factors
such as equity, hardship, and public policy where a
compromise of an individual taxpayer’s income tax
liability would promote effective tax administration.”
H. Conf. Rep. No. 599, 105th Cong., 2d Sess. 289
(1998). The legislative history also specifies that
the IRS should utilize this new authority “to resolve
longstanding cases by forgoing penalties and interest
which have accumulated as a result of delay in
determining the taxpayer’s liability.” Id. The Hoyt
partnership cases clearly qualify as “longstanding”
cases and interest should be abated in an offer in
compromise. The Commissioner’s current position on
these cases, to abate no interest because the IRS does
not believe it contributed to the delay, is
inconsistent with the broad legislative intent to go
outside the narrow constraints of interest abatement
under 26 U.S.C. sec. 6404(e) and simply abate interest
in longstanding cases.

Furthermore, it has been established by Jay Hoyt’s
March 2001 conviction that he defrauded the partners
and that the partners were his unwitting victims. (The
I.R.S. also determined that the partners were
“unwitting victims” in his appeals supporting statement
concerning the TEFRA cases). Thus, application of RRA
1998's equitable provisions should take into account
the extraordinary circumstances of these victims. The
IRS’ refusal to consider the equities of these cases is
inconsistent with legislative intent.

Therefore, the collection alternative of an “effective
tax administration” offer should be considered.

            *    *    *    *      *   *   *

3.   Opportunity to be Heard

Mr. and Mrs. Bergevin had no opportunity to be heard
during the examination process. Jay Hoyt, the TMP, was
under criminal investigation by the IRS during the
examination process and was subject to impermissible
conflicts of interests due to that investigation that
rendered him incapable of performing his fiduciary
                          - 7 -

duties to Mr. and Mrs. Bergevin. During that same time
period, Jay Hoyt was also under tax return preparer
penalty investigation by the IRS, which also
contributed to his conflicts of interest and his
inability to represent Mr. and Mrs. Bergevin.
Notwithstanding the effect of IRS investigations on the
TMP’s fiduciary duties to the partners, the IRS
determined in 1989 that a number of circumstances
caused Jay Hoyt to have debilitating conflicts of
interest and that he, in fact, breached his fiduciary
duty to the partners. For example, Mr. Hoyt apparently
did not raise questions concerning the treatment of
guarantee payments to the investors, when those
payments were not paid to the investors but credited as
IRA payments that were later disallowed by the IRS.
However, to raise this issue, Hoyt would have to admit
to his fraudulent actions concerning the IRA plan,
which of course he did not. The effect of Hoyt’s
conflicts of interest on the tax assessments ultimately
suffered by his victims should be considered under the
expanded RRA 1998 equity provisions.

4.   Offer in Compromise or Other Collection Alternative

Mr. and Mrs. Bergevin will not be able to pay the full
Hoyt liability, which is currently estimated to be
approximately $130,000, which amount includes both the
assessed years 1981 through 19861 and the unassessed
years 1987 through 1996. The entire liability should
be considered when determining Mr. and Mrs. Bergevin’s
ability to pay. Consideration should also be give
[sic] to the financial hardship payment will cause when
Mr. and Mrs. Bergevin retire. See Code sec. 7122(c)(1)
as added by section 3462(a) of RRA 1998 (Public Law No.
105-206). Any tax payment by the Bergevins will
significantly impact their ability to provide for
necessary living expenses during retirement. In the
Conference Report of RRA 1998, Congress expressed its
intent “that the IRS [in formulating these rules] take
into account factors such as equity, hardship, and
public policy where a compromise of an individual
taxpayer’s income tax liability would promote effective
tax administration.” H. Conf. Rep. 599, 105th Cong.,
2d Sess 289 (1998). We are currently in process of
updating Mr. and Mrs. Bergevin’s financial information
                               - 8 -

     and an updated Form 433-A Financial Statement will be
     provided upon request.
     _____________________
          1
            1985 has been assessed but has not been included
     in the group of Notices to Intent to Levy dated
     March 21, 2005.

     Petitioners’ financial information provided on Form 433-A,

Collection Information Statement for Wage Earners and Self-

Employed Individuals, listed two checking accounts with a total

balance of $1,186; two investment accounts totaling $44,051; and

two automobiles.   They listed their residence as valued at

$131,440, with an outstanding loan of $93,000.     Petitioners’

income and expenses were shown as follows:

                       Total Monthly Income

          Source                                 Gross Monthly

Wages (Robert Bergevin)                             $2,750
Wages (Grace Bergevin)                                 635
Pension/Social Security (Robert Bergevin)              909
Pension/Social Security (Grace Bergevin)             1,483
Other                                                  363
  Total                                              6,l40

                   Total Monthly Living Expenses

      Expense Items                           Actual Monthly

Food, clothing, and misc.                           $1,280
Housing and utilities                                1,138
Transportation                                       1,210
Health care                                            391
Taxes (income and FICA)                                637
Other expenses                                         545
  Total                                              5,201

     After the exchange of financial information, petitioners

proposed to pay $20,652 in full satisfaction of their then
                                - 9 -

estimated $130,000 liability.   The settlement officer explained

his methodology as follows:

     As I indicated in my previous letter, administrative
     guidance found in Internal Revenue Manual (“IRM”) sec.
     5.8.11.2.2(10) specifically states that:

          The Service will not compromise on public policy
          or equity grounds based solely on the argument
          that the acts of a third party caused the unpaid
          tax liability.

     The regulations in 26 C.F.R sec. 301.7122-1(b)(3)(iii)
     preclude settlement if compromise would undermine the
     general public’s compliance with our nation’s tax laws.
     IRS has taken this stance with respect to settlement of
     TEFRA matters such as your[s]. IRM sec. 5.8.11.2.2(3)
     provides an example that resembles your case. The
     existing administrative policies and procedures simply
     preclude me from being able to secure the necessary
     approvals of a non-hardship Effective Tax
     Administration (“ETA”) offer in your case. I am not,
     however, precluded from considering the merits of your
     case under standard doubt as to collectibility or ETA
     hardship criteria.

     For an offer in compromise based upon doubt as to
     collectibility to be accepted, you must generally offer
     an amount that meets or exceeds reasonable collection
     potential (“RCP”). RCP has two primary components:

          1.   Net realizable equity in assets, and

          2.   The present value of your future ability to
               pay toward the tax debt

     Net realizable equity in assets is simply the
     difference between the quick sale values (generally
     80 percent of fair market values) of your assets minus
     the amounts owed on the interests and encumbrances
     having priority over the federal tax liens. The
     present value of your future income is determined by
     subtracting necessary living expenses (those necessary
     for your health, welfare and the production of income)
     from your monthly income. For Appeals to accept your
     offer under ETA hardship provisions, you must be able
     to demonstrate that payment of more than $20,652 would
                             - 10 -

     cause you to be unable to meet your necessary living
     expenses.

     Petitioners raised some objections to the settlement

officer’s initial computations.   The settlement officer made some

adjustments in response to information submitted.   The settlement

officer reduced petitioners’ projected monthly net income and

recomputed the collection potential as follows:
                                           - 11 -
                                      ASSET/EQUITY TABLE
                                             (AET)

                                           BERGEVIN
Revised Jan. 31, 2006

                  Fair Market Value   Quick Sale Value     Encumbrance       Net Realizable
                        (FMV)              (QSV)           or Exemption          Equity
Asset               Determination      Determination       Determination     Determination

Cash                             0                0                0                      0
Checking acct.              $1,347           $1,347                0                 $1,347
Checking acct.-2               262              262                0                    262
Savings acct.                   25               25                0                     25
401(k)                      69,500           69,500          $24,325                 45,175
401(k)-2                       317              317                0                    317
Loan value of
 life ins.                       0                0                0                      0
Stocks, bonds,
 mutual funds                    0                0                0                      0
Pension                          0                0                0                      0
Personal
 residence                 181,200          144,960           94,500                 50,460
Dissipation
 of assets           15,000-50,000    15,000-50,000                0          15,000-50,000
Other real
 estate                          0                0                0                      0
Furniture/
 personal effects          ‹ 7,200          ‹ 7,200            7,200                      0
Vehicle 1–1995
 Saturn SL1
 83,000 miles                1,000              800                0                    800
Vehicle 2-2002
 Toyota Camry
 50,000 miles               11,000            8,800            6,855                  1,945
Accts. receivable                0                0                0                      0
Tools/equip.
 of trade                  ‹ 3,600          ‹ 3,600            3,600                      0
     Total Net Realizable Equity in Assets                                $115,331-$150,331
     Present Value of Future Income (from the IET)                     Cash Offer - $28,032
     TOTAL MINIMUM OFFER (absent exceptional
        circumstances)                                      Cash Offer - $143,363-$178,363
       (absent exceptional circumstances)
     Total Tax Liability (as of 2/15/2006)                                         $150,000
                                                                           (POA’s estimate)

IRC 6334(a)(2) allows for an exemption of $7,200 for fuel, provisions, furniture, and
  personal effects.
IRC 6334(a)(3) allows for an exemption of $3,600 for books and tools of a trade,
  business, or profession.
REMARKS:
  * The $1,347 value assigned to the checking acct. is the average minimum balance as
     reflected on the June, July, and Aug. 2005 bank statements.
  * The $69,500 value for the 401(k) acct. based on the 9/30/05 statement. An
     estimated 35 percent tax implication is assigned to this 401(k) acct. because it
     is being used to fund the offer.
  * The $181,200 value for the Personal Residence is the Estimated Market Value as
     determined by the Anoka County Assessor and reflected on the 2005 Property Acct.
     Statement.
  * The Private Party Value of the 2002 Camry is $11,000. Trade-in Value is not used
     because the FMV is reduced by 20 percent to arrive at a forced-sale value.
  * $15,000-$50,000 dissipation of assets assigned to the portion of the Home Equity
     Line of Credit used to fund payment of unsecured credit cards debts and non-
     necessary living expenses such as sprinkler.
                              - 12 -

     Petitioners’ primary arguments were that, at 71 and 70 years

of age, they were approaching retirement age; Mr. Bergevin had

special health problems; and, after retirement, they would have

negative cashflow.   Petitioners presented projections claiming

that they would need to retain most of their asset equity to meet

their ordinary and necessary living expenses over the following

5 years.   The settlement officer responded in part:

     The Bergevin Asset Equity Calculator presented by your
     representative’s firm, though an illustration commonly
     presented as a contention in an Effective Tax
     Administration offer, is non-persuasive. It’s based on
     the erroneous premise that the Internal Revenue Service
     is charged with making certain taxpayers have
     sufficient assets to fund future living expenses. To
     agree with this assumption is to conclude that absent
     independent wealth no one over the age of 60 should
     have to pay any federal tax because he/she will need
     such funds for future retirement living expenses.
     Congress has made no such exception and IRS, as the
     revenue collecting arm of the United States, has no
     role in such a social issue. General offer guidelines
     require the IRS examiner to make a reasonable
     determination as to necessary living expenses and
     Effective Tax Administration guidelines further require
     the examiner to make a reasonable determination as to
     future living expenses within the overall context of
     settlement, but the examiner is not required to ensure
     the existence level presented by your representative at
     the practical disregard for the tax debt. The examples
     in Internal Revenue Manual 5.8.11 in no way present
     such a requirement.

     The taxpayers are each of retirement age. If one or
     both retire, their household income would decrease
     along with the expense allowances for Taxes and
     Transportation. Health Care expenses would likely
     increase. The IRM allows a continuing Transportation
     Operating expense of $200 once the loan on the 2002
     Toyota Camry is paid. Because of the uncertainties and
     complexities involved in this case, I used a PV factor
     of 24 (months) instead of the standard 48 (months) in
                              - 13 -

     determining the present value of the Bergevins’ future
     ability to pay. This was done in accordance with IRM
     5.8.5.5.

     During the course of the negotiations through exchange of

documents and meetings between petitioners’ counsel and the

settlement officer, other issues were discussed.   The parties

disagreed as to the effect of a decision entered February 9,

2005, in an abatement action brought by petitioners in this

Court.   The decision provided that, with respect to the tax years

1984, 1985, and 1986, petitioners are not entitled to an

abatement of interest under section 6404.

     In the notices of determination sent March 3, 2006, the

offer-in-compromise was rejected as follows:

     Offers of Collection Alternatives

     We considered your offer of $20,652 dated September 27,
     2005 and were not able to accept the offer under
     existing policies and procedures. * * * [Settlement
     Officer Dale Veer] previously provided you with the
     details of how this determination was made.

     You were given the opportunity to amend your offer to
     an amount not less than the current balance owed for
     years 1981, 1982, 1983, 1984, 1985 and 1986. You were
     also offered the opportunity to either pay the
     1981-1986 balances in full or present an alternative
     proposal to the offer in compromise. You neglected all
     such opportunities.

                            Discussion

     Petitioners invoke our jurisdiction under section 6330(d) to

review the notices of determination sent to them with respect to

the proposed levies on their property.   Petitioners contend that
                             - 14 -

refusal to accept their offer-in-compromise was an abuse of

discretion because of their “special circumstances” of age and

health and postretirement anticipated earnings; that the offer-

in-compromise should have been accepted because factors such as

equity, hardship, and public policy warrant its acceptance to

promote effective tax administration; that the Commissioner

failed to establish sufficient guidelines for resolving

longstanding cases by such means as forgoing penalties and

interest that have accumulated as a result of delay in

determining the taxpayers’ liability; and that interest abatement

should have been considered during the section 6330 hearing.

     Respondent contends that the offer-in-compromise petitioners

made was inadequate in view of their financial circumstances

analyzed by the settlement officer; that petitioners’ situation

is neither unique nor exceptional; that effective tax

administration would not be served by acceptance of the low

offer-in-compromise because it would undermine compliance by

other taxpayers; that some of the interest on petitioners’

liabilities had been abated (for 1981, 1982, and 1983); and that

petitioners’ abatement arguments relate only to the total amount

of the liability to be compromised.

     Although the record includes six stipulations and over 400

exhibits, the parties agree that the overriding issues in this

case are indistinguishable from issues discussed in other cases,
                                - 15 -

some of which are on appeal.    Those issues relate to the effect

of Hoyt’s fraud and the years of delay in resolving tax

liabilities of his investors.    In addition, petitioners argue:

     the other issues that are substantially the same or
     identical are how to treat * * * elderly and retired
     individuals. Does Respondent need to make some–-does
     Respondent need to estimate their basic needs for their
     life span? That is probably the overreaching [sic]
     issue in a number of the cases where we have elderly
     and retired individuals. So an answer to that would
     probably answer this case as well.

     Respondent has objected to some of the exhibits on the

grounds of hearsay and to others on the grounds that they are not

relevant because they were not presented to the Appeals officer

during the exchanges that constituted the section 6330 hearing.

See Robinette v. Commissioner, 439 F.3d 455 (8th Cir. 2006);

Murphy v. Commissioner, 125 T.C. 301 (2005), affd. 469 F.3d 27

(1st Cir. 2006); Magana v. Commissioner, 118 T.C. 488, 493

(2002).   We sustain the objections because, even if the exhibits

are considered for nonhearsay purposes and are relevant, they

constitute needless presentation of cumulative evidence.    See

Fed. R. Evid. 403.

     Section 7122(c) and (d) provides as follows:

          SEC. 7122(c).   Standards for Evaluation of
     Offers.--

               (1) In general.–-The Secretary shall
          prescribe guidelines for officers and employees of
          the Internal Revenue Service to determine whether
          an offer-in-compromise is adequate and should be
          accepted to resolve a dispute.
                        - 16 -

          (2) Allowances for basic living expenses.--

               (A) In general.–-In prescribing
          guidelines under paragraph (1), the Secretary
          shall develop and publish schedules of
          national and local allowances designed to
          provide that taxpayers entering into a
          compromise have an adequate means to provide
          for basic living expenses.

               (B) Use of schedules.–-The guidelines
          shall provide that officers and employees of
          the Internal Revenue Service shall determine,
          on the basis of the facts and circumstances
          of each taxpayer, whether the use of the
          schedules published under subparagraph (A) is
          appropriate and shall not use the schedules
          to the extent such use would result in the
          taxpayer not having adequate means to provide
          for basic living expenses.

          (3) Special rules relating to treatment of
     offers.–-The guidelines under paragraph (1) shall
     provide that--

               (A) an officer or employee of the
          Internal Revenue Service shall not reject an
          offer-in-compromise from a low-income
          taxpayer solely on the basis of the amount of
          the offer; and

               (B) in the case of an offer-in-
          compromise which relates only to issues of
          liability of the taxpayer--

                    (i) such offer shall not be
               rejected solely because the Secretary is
               unable to locate the taxpayer’s return
               or return information for verification
               of such liability; and

                    (ii) the taxpayer shall not be
               required to provide a financial
               statement.

     (d) Administrative Review.–-The Secretary shall
establish procedures--
                                - 17 -

                  (1) for an independent administrative review
             of any rejection of a proposed offer-in-compromise
             or installment agreement made by a taxpayer under
             this section or section 6159 before such rejection
             is communicated to the taxpayer; and

                  (2) which allow a taxpayer to appeal any
             rejection of such offer or agreement to the
             Internal Revenue Service Office of Appeals.

     Regulations adopted pursuant to section 7122 set forth three

grounds for the compromise of a liability:     (1) Doubt as to

liability; (2) doubt as to collectibility; or (3) promotion of

effective tax administration.     Sec. 301.7122-1, Proced. & Admin.

Regs.     With respect to the third ground, paragraph (b)(3)(i) of

the regulation allows for a compromise to be entered into to

promote effective tax administration where collection in full

could be achieved but would cause economic hardship.     Paragraph

(c)(3)(i) sets forth factors that would support (but are not

conclusive of) a finding of economic hardship.     With respect to

the third ground, those regulations state:

             (3) Compromises to promote effective tax
        administration.–-(i) Factors supporting (but not
        conclusive of) a determination that collection would
        cause economic hardship within the meaning of paragraph
        (b)(3)(i) of this section include, but are not limited
        to--

                   (A) Taxpayer is incapable of earning a living
        because of a long term illness, medical condition, or
        disability, and it is reasonably foreseeable that
        taxpayer’s financial resources will be exhausted
        providing for care and support during the course of the
        condition;

                  (B) Although taxpayer has certain monthly
        income, that income is exhausted each month in
                               - 18 -

     providing for the care of dependents with no other
     means of support; and

               (C) Although taxpayer has certain assets, the
     taxpayer is unable to borrow against the equity in
     those assets and liquidation of those assets to pay
     outstanding tax liabilities would render the taxpayer
     unable to meet basic living expenses.

The regulation states that no compromise may be entered into if

such compromise of liability would undermine compliance by

taxpayers with the tax laws.   Sec. 301.7122-1(b)(3)(iii), Proced.

& Admin. Regs.   Paragraph (c)(3)(ii) then sets forth factors that

support (but are not conclusive of) a determination that a

compromise would undermine compliance with the tax laws.   These

factors include:   (A) A taxpayer who has a history of

noncompliance with the filing and payment requirements of the

Internal Revenue Code; (B) a taxpayer who has taken deliberate

action to avoid the payment of taxes; and (C) a taxpayer who has

encouraged others to refuse to comply with the tax laws.   Sec.

301.7122-1(c)(3)(ii), Proced. & Admin. Regs.   The regulation

continues:

          (iii) The following examples illustrate the types
     of cases that may be compromised by the Secretary, at
     the Secretary’s discretion, under the economic hardship
     provisions of paragraph (b)(3)(i) of this section:

          Example 1. The taxpayer has assets sufficient to
     satisfy the tax liability. The taxpayer provides full
     time care and assistance to her dependent child, who
     has a serious long-term illness. It is expected that
     the taxpayer will need to use the equity in his assets
     to provide for adequate basic living expenses and
     medical care for his child. The taxpayer’s overall
     compliance history does not weigh against compromise.
                              - 19 -

          Example 2. The taxpayer is retired and his only
     income is from a pension. The taxpayer’s only asset is
     a retirement account, and the funds in the account are
     sufficient to satisfy the liability. Liquidation of
     the retirement account would leave the taxpayer without
     an adequate means to provide for basic living expenses.
     The taxpayer’s overall compliance history does not
     weigh against compromise.

          Example 3. The taxpayer is disabled and lives on
     a fixed income that will not, after allowance of basic
     living expenses, permit full payment of his liability
     under an installment agreement. The taxpayer also owns
     a modest house that has been specially equipped to
     accommodate his disability. The taxpayer’s equity in
     the house is sufficient to permit payment of the
     liability he owes. However, because of his disability
     and limited earning potential, the taxpayer is unable
     to obtain a mortgage or otherwise borrow against this
     equity. In addition, because the taxpayer’s home has
     been specially equipped to accommodate his disability,
     forced sale of the taxpayer’s residence would create
     severe adverse consequences for the taxpayer. The
     taxpayer’s overall compliance history does not weigh
     against compromise.

Under the regulations, a compromise may also be entered into to

promote efficient tax administration if there are compelling

public policy or equity considerations identified by the

taxpayer.   Compromise is justified where, because of exceptional

circumstances, collection of the full liability would undermine

public confidence that tax laws are being administered fairly.

Sec. 301.7122-1(b)(3)(ii), Proced. & Admin. Regs.   Some examples

where a compromise is allowed for purposes of public policy and

equity are:   (1) A taxpayer who was hospitalized regularly for a

number of years and was unable, at that time, to manage his

financial affairs and (2) a taxpayer learns at audit that he was
                              - 20 -

given erroneous advice and is facing additional taxes, penalties,

and additions to tax.   Sec. 301.7122-1(c)(3)(iv), Proced. &

Admin. Regs.   In addition to the regulations, detailed

instructions concerning offers-in-compromise are contained in the

Internal Revenue Manual.   1 Administration, Internal Revenue

Manual (CCH), pt. 5.8, at 16251.

     Notwithstanding minor disputes about the computation of

collection potential by the settlement officer, petitioners have

not shown that payment of more than the amount that they offered

in settlement of their liabilities would render them unable to

meet basic living expenses.   Their projections of future expenses

are speculative and unpersuasive.   Petitioners’ situation is not

comparable to the examples given in the regulations.   In any

event, the settlement officer thoroughly considered and addressed

their arguments.

     Except for the specifics of the financial information, this

case is indistinguishable from the other cases decided by this

Court in which we held that it was not an abuse of discretion to

reject the taxpayers’ offer to compromise their outstanding

liabilities relating to the Hoyt investments at a fraction of the

total liabilities.   See Smith v. Commissioner, T.C. Memo. 2007-

73; Hansen v. Commissioner, T.C. Memo. 2007-56; Catlow v.

Commissioner, T.C. Memo. 2007-47; Estate of Andrews v.

Commissioner, T.C. Memo. 2007-30; Johnson v. Commissioner, T.C.
                             - 21 -

Memo. 2007-29; Freeman v. Commissioner, T.C. Memo. 2007-28;

Hubbart v. Commissioner, T.C. Memo. 2007-26; Carter v.

Commissioner, T.C. Memo. 2007-25; Abelein v. Commissioner, T.C.

Memo. 2007-24; Ertz v. Commissioner, T.C. Memo. 2007-15;

McDonough v. Commissioner, T.C. Memo. 2006-234; Lindley v.

Commissioner, T.C. Memo. 2006-229; Clayton v. Commissioner, T.C.

Memo. 2006-188; Keller v. Commissioner, T.C. Memo. 2006-166;

Barnes v. Commissioner, T.C. Memo. 2006-150.

     All of the arguments made by petitioners were thoroughly

discussed in Ertz v. Commissioner, supra.   As in the other cases,

petitioners’ arguments were considered by the settlement officer,

although the arguments were not accepted.   As we stated in Ertz:

     compromising petitioner’s case on grounds of public
     policy or equity would not enhance voluntary compliance
     by other taxpayers. 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 is participation in 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. See Barnes v. Commissioner, supra [T.C.
     Memo. 2006-150].

     In concluding that it was not an abuse of discretion to

accept the offer-in-compromise at less than 20 percent of

petitioners’ estimated total liability, we do not determine an

acceptable offer-in-compromise or other alternative means of
                              - 22 -

collection.   The only issue before us is whether there was an

abuse of discretion in refusing the offer that petitioners made.

See Speltz v. Commissioner, 124 T.C. 165, 180 (2005), affd. 454

F.3d 782 (8th Cir. 2006).   The settlement officer adequately

considered the arguments and made a reasoned determination.     We

hold that there was no abuse of discretion in that process.


                                    Decision will be entered

                               for respondent.
