                          T.C. Memo. 2004-13



                        UNITED STATES TAX COURT



        CHARLES G. AND ELIZABETH A. FARGO, Petitioners v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 9492-02L.             Filed January 16, 2004.


     Dennis N. Brager, for petitioners.

     Linette B. Angelastro, for respondent.



                          MEMORANDUM OPINION


     HOLMES, Judge:     The petitioners, Charles and Elizabeth

Fargo, bought two tax shelters 20 years ago.      When respondent

disallowed their losses and sent them a notice of deficiency in

2000, time and the compounding of interest had nearly quadrupled

their total bill.   Petitioners paid the tax portion of the

deficiencies in full.    We consider whether respondent abused his
                                   - 2 -

discretion under section 6330 in refusing to compromise the

remainder.

                                Background

        Petitioners filed joint returns for the tax years 1983 and

1984.       For 1983, they claimed a Schedule E loss of $30,767

attributable to their interest in a partnership named Jackson &

Associates (Jackson).       For 1984, they claimed Schedule E losses

of $2,749 attributable to their interest in Jackson and $28,996

attributable to their interest in another partnership, Smith &

Asher Associates (Smith/Asher).       Both Jackson and Smith/Asher

were partners in other partnerships:         Jackson in a partnership

called Wilshire West Associates (Wilshire), and Smith/Asher in a

partnership called Redwood Associates (Redwood).         All these

partnerships were subject to the TEFRA provisions of sections

6221-6234.1

     These partnerships were all affiliated with a group of tax

shelters known as the Swanton Coal Programs, a coal mining

venture which produced much more litigation than coal.         See,

e.g., Smith v. Commissioner, 92 T.C. 1349 (1989); Beagles v.

        1
       Section references are to the Internal Revenue Code of
1986, as amended. Secs. 6221 to 6234 were added by the Tax
Equity and Fiscal Responsibility Act (TEFRA) of 1982, Pub. L. 97-
248, sec. 402(a) 96 Stat. 648, and provide for the determination
of partnership items at the partnership, rather than at the
individual partner, level. The Commissioner is generally unable
to assess a deficiency relating to a TEFRA partnership item until
after the completion of partnership-level proceedings. See
generally Katz v. Commissioner, 116 T.C. 5, 8 (2001), revd. on
other grounds 335 F.3d 1121 (10th Cir. 2003).
                               - 3 -

Commissioner, T.C. Memo. 2003-67; Kelley v. Commissioner, T.C.

Memo. 1993-495.   In Kelley, we concluded that “The formation and

operation of the Swanton Coal Programs appear to have as

substance little more than a grandiose serving of whimsy”, and

that they were “nothing more than an elaborate scam to provide

highly leveraged deductions for nonexistent expenses.”     We

therefore disallowed the partnership losses at issue, and

sustained the Commissioner’s imposition of increased interest

pursuant to section 6621(c) because the programs were so clearly

tax-motivated transactions.

     Because the programs used tiered partnerships, however, our

decision in Kelley did not automatically resolve the tax

liability of partners in Jackson or Smith/Asher, and the

Commissioner continued to negotiate with the tax matters partners

(TMPs) for these partnerships until finally reaching closing

agreements with both of them by mid-1999.   After Jackson and

Smith/Asher concluded their closing agreements, respondent

contacted petitioners in November 1999, sending them a notice of

examination that proposed changes to their 1983 and 1984 returns.

In March 2000, respondent sent out notices of deficiency.

Petitioners paid the entire tax portion of their outstanding 1983

and 1984 deficiencies (amounting to $23,977), but did not pay any

of the accrued interest (which had grown to more than $100,000).

After assessing the deficiencies, respondent sent petitioners a
                                - 4 -

final notice of intent to levy.    Petitioners timely requested a

hearing, the focus of which was their offer to compromise the

nearly two decades of compound interest for $7,500.    The Appeals

officer rejected their offer and determined that a levy was

appropriate.    This action followed.   The case was calendared for

trial in California, where the Fargos resided when they filed

their petition.    The parties stipulated the relevant facts, and

moved to submit the case for decision without trial under Rule

122.

                             Discussion

       Section 7122(c) directs the Secretary to prescribe

guidelines for determining whether to accept or reject specific

offers in compromise.    Under section 301.7122-1T(b), Temporary

Proced. & Admin. Regs., 64 Fed. Reg. 39024 (July 21, 1999),2

there are three grounds for compromise:    Doubt as to liability,

doubt as to collectibility, and promotion of effective tax

administration.    Petitioners argue that their compromise offer

met two of the temporary regulations’ separate standards for

acceptance “in furtherance of effective tax administration”--

collection of the full amount would cause them economic hardship,



       2
       As petitioners submitted their offer in compromise after
July 21, 1999, and before July 18, 2002, it is governed by the
temporary regulations that were then in force. (The portions
relevant to this case survived in substantially similar form in
the final regulations at sec. 301.7122-1(b), Proced. & Admin.
Regs.)
                               - 5 -

see sec. 301.7122-1T(b)(4)(i), Temporary Proced. & Admin. Regs.,

supra; and, even if it did not, would because of “exceptional

circumstances” be “detrimental to voluntary compliance by

taxpayers” by creating doubt as to the fair administration of the

tax laws, see sec. 301.7122-1T(4)(ii), Temporary Proced. & Admin.

Regs., supra.

     Respondent rejected both arguments.   He concluded that

petitioners could fully satisfy both their tax debt and their

foreseeable expenses without economic hardship.   He also

concluded that they had failed to show “exceptional

circumstances” sufficient to justify accepting their compromise.

     We examine each issue in turn, mindful that our review under

section 6330 is for abuse of discretion.   See Davis v.

Commissioner, 115 T.C. 35, 39 (2000).   This standard does not ask

us to decide whether in our own opinion the offer in compromise

should have been accepted, but whether the Commissioner exercised

his “discretion arbitrarily, capriciously, or without sound basis

in fact or law.”   Woodral v. Commissioner, 112 T.C. 19, 23

(1999).

A.   Hardship

     Petitioners suggest that although they currently enjoy

fairly substantial means, their economic future is tainted by a

diagnosis that petitioner Charles Fargo suffers from a

progressive neurological condition that may eventually require
                                 - 6 -

round-the-clock nursing care.    They claim that such care is so

expensive (almost $90,000/year, by their estimate) that it would

cause them to wholly consume their liquid assets in 10 years.

They argue that respondent should have accepted their offer as a

viable alternative to a levy because of this foreseeable economic

hardship.

     As we already noted, we look to respondent’s determination

for anything that runs counter to established law or suggests the

lack of a “sound basis in fact or law.”    In that light, we

decline to second-guess his determination that petitioners’

resources are sufficient to warrant collection of the entire

outstanding liability.   The record compiled by respondent

indicates that petitioners possess substantial wealth--over a

million dollars in total assets (if equity in real estate is

counted) and a large income even in their retirement.    While

petitioners certainly present a legitimate view of their possible

future needs, we do not find that the record shows respondent to

have abused his discretion in concluding that petitioners can pay

their debt without suffering substantial economic hardship.

B.   Exceptional Circumstances

     Petitioners also renew here the arguments in favor of a

finding of “exceptional circumstances” that they made to

respondent.   First, they contend the IRS had no justification for

its extraordinary delay in assessing their unpaid tax liability
                                - 7 -

after we decided Kelley v. Commissioner, supra.    Quoting

extensively from legislative history, petitioners argue that the

delay between the adjudication of the underlying tax issues in

1993 and the first contact they received from the IRS in 1999

falls within the class of situations contemplated by Congress

when it described the offer in compromise program as a method for

resolving “longstanding cases * * * which have accumulated as a

result of delay in determining the taxpayer’s liability.”    H.

Conf. Rept. 105-599, at 289 (1998), 1998-3 C.B. 747, 1043.

     Petitioners suggest that the IRS was at the very least

complicit, and perhaps negligent or malicious, in allowing their

original tax savings of $23,977 to balloon into a total liability

of more than $127,000.   They allege that this IRS conduct should

have compelled respondent to accept their offer in compromise.

     Respondent, while acknowledging the length of time that

passed between our decision in Kelley v. Commissioner, T.C. Memo.

1993-495, and his contacting petitioners, contends that it was

due not to any improprieties by the IRS, but rather to the

deliberate pace at which TEFRA partnership audits may progress.

The partnership interests which petitioners held were not in the

partnerships directly at issue in Kelley, but rather in

partnerships which themselves were partners in the partnerships

that Kelley analyzed.    This tiered structure meant that under

TEFRA, even after Kelley, respondent had to negotiate a closing
                               - 8 -

agreement with the TMPs of the partnerships in which petitioners

had an interest before starting collection activity at their

level.

     The Appeals officer determined that the delay in

petitioners’ learning of their snowballing liability is a matter

they should address with the TMPs of their partnerships.    We

agree.   TEFRA contemplates that it is generally a TMP’s

responsibility to keep his partners informed.3   Sec. 6233(g);

sec. 301.6223(g)-1T, Temporary Proced. & Admin. Regs., 52 Fed

Reg. 6785 (Mar. 5, 1987).   We decline to decide that the failure

of the IRS to contact petitioners sooner is reason to compel

respondent to accept a settlement of approximately 7 percent of

petitioners’ interest liability.

     We do agree with petitioners that there is something

disconcerting about their not receiving notice of the

ramifications for them of the Swanton coal litigation until 1999.

Indeed, respondent’s determination notes that petitioners may

have received no correspondence at all from their TMPs since


     3
        One part of respondent’s determination regarding the long
delay between Kelley and assessment does seem mistaken. The
Appeals officer found that “no link had been established” between
the Swanton Coal Programs and petitioners’ tax liabilities. This
statement is fundamentally in error if it was intended to mean
that Kelley did not at least indirectly affect petitioners’ tax
liabilities. Nevertheless, it appears to be dictum. Regardless
of the interrelation of the partnerships involved in the Swanton
Programs, respondent is correct that legal responsibility for
more promptly notifying petitioners and trying to resolve their
partnerships’ tax issues lay ultimately with their TMPs.
                                - 9 -

1991.   We believe however, that if there is a remedy, it does not

lie in denying the Government the interest to which it is legally

entitled.

      Petitioners also call our attention to the decision in

Beagles v. Commissioner, T.C. Memo. 2003-67, which indicates that

the Commissioner abated over 6 years’ worth of interest arising

out of a similar liability for the taxpayers in that case, which

also arose from the Swanton Coal Programs.    Petitioners argue

that this makes it inequitable for respondent to have denied

their offer in compromise, which sought only similar relief.

      We are unpersuaded.   The Commissioner’s decision to grant

interest abatement to one Swanton participant would hardly

suffice to show that he abused his discretion in denying

another’s request for an offer in compromise.    Different factors

are relevant to each form of relief, and of course, different

taxpayers face different circumstances: in Beagles, the

Commissioner may have abated interest at least in part because

the taxpayer became terminally ill during the collection process.

Id.
                             - 10 -

     In any event, review for abuse of discretion allows

different decisions even in similar cases, so long as none

represent a clear error in judgment by the decisionmaker.

Rasbury v. IRS, 24 F.3d 159, 168 (11th Cir. 1994).



                                   Decision will be entered for

                              respondent.
