                        T.C. Memo. 2006-234



                      UNITED STATES TAX COURT



                 GARY W. McDONOUGH, Petitioner v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 1201-05L.               Filed November 1, 2006.



     Asher B. Bearman, Jaret R. Coles, Jennifer A. Gellner, and

Terri A. Merriam, for petitioner.

     Gregory M. Hahn and Thomas N. Tomashek, for respondent.



              MEMORANDUM FINDINGS OF FACT AND OPINION


     HAINES, Judge:   Petitioner filed a petition with this Court

in response to a Notice of Determination Concerning Collection

Action(s) Under Section 6320 and/or 6330 for 1989 and 1991.1


     1
         Unless otherwise indicated, all section references are to
                                                    (continued...)
                               - 2 -

Pursuant to section 6330(d), petitioner seeks review of

respondent’s determination.   The sole issue for decision is

whether respondent abused his discretion in sustaining the

proposed levy action.

                         FINDINGS OF FACT

     The parties’ stipulation of facts and the attached exhibits

are incorporated herein by this reference.   The facts stipulated

are so found.2   Petitioner resided in Westminster, California,




     1
      (...continued)
the Internal Revenue Code, as amended, and all Rule references
are to the Tax Court Rules of Practice and Procedure. Amounts
are rounded to the nearest dollar.
     2
         Respondent reserved relevancy objections to many of the
exhibits attached to the stipulations of fact. Fed. R. Evid. 402
provides the general rule that all relevant evidence is
admissible, while evidence which is not relevant is not
admissible. Fed. R. Evid. 401 defines relevant evidence as
“evidence having any tendency to make the existence of any fact
that is of consequence to the determination of the action more
probable or less probable than it would be without the evidence.”
While the relevancy of some exhibits is certainly limited, this
Court finds that the exhibits meet the threshold definition of
relevant evidence and are admissible. The Court will give the
exhibits only such consideration as is warranted by their
pertinence to the Court’s analysis of petitioner’s case.

     Respondent also objected to many of the exhibits on the
basis of hearsay. Even if the Court were to receive those
exhibits into evidence, they would have no impact on our findings
of fact or on the outcome of this case.
                                - 3 -

when he filed his petition.   Petitioner’s wife, Mary Jane

McDonough, filed separate tax returns for 1989 and 1991.

Petitioner is 57 years old and is currently employed by the Los

Angeles City Fire Department.

     Petitioner invested in two partnerships organized and

operated by Walter J. Hoyt III (Hoyt).   The partnerships were

Timeshare Breeding Syndicate Joint Venture (TBS) and Timeshare

Breeding Service 1989-1 J.V. (TBS 1989-1).

     From about 1971 through 1998, Hoyt organized, promoted, and

operated more than 100 cattle breeding partnerships (Hoyt

partnerships).   Hoyt also organized, promoted, and operated sheep

breeding partnerships.   From 1983 until his removal by the Tax

Court in 2000 through 2003, Hoyt was each partnership’s general

partner and tax matters partner.   From approximately 1980 through

1997, Hoyt was a licensed enrolled agent, and as such, he

represented many of the Hoyt partners before the IRS.   In 1998,
                               - 4 -

Hoyt’s enrolled agent status was revoked.   In 2001, Hoyt was

convicted of criminal charges relating to the promotion of these

partnerships.3

     Petitioner reported partnership losses from TBS and TBS

1989-1 on his Form 1040, U.S. Individual Income Tax Return, for

1989 of $3,560 and $27,509, respectively, and for 1991 of $33,782

and $59,179, respectively.   Petitioner’s claim to the losses

resulted in the underreporting of his 1989 and 1991 taxable

income.   On May 13, 2002, additional income taxes and interest




     3
       Petitioner asks the Court to take judicial notice of
certain “facts” in other Hoyt-related cases and apply judicial
estoppel to “facts respondent has asserted in previous [Hoyt-
related] litigation”. The Court will do neither.

     A judicially noticeable fact is one not subject to
reasonable dispute in that it is either (1) generally known
within the territorial jurisdiction of the trial court or (2)
capable of accurate and ready determination by resort to sources
whose accuracy cannot reasonably be questioned. Fed. R. Evid.
201(b). Petitioner is not asking the Court to take judicial
notice of facts that are not subject to reasonable dispute.
Instead, petitioner is asking the Court to take judicial notice
of the truth of assertions made by taxpayers and the Commissioner
in other Hoyt-related cases. Such assertions are not the proper
subject of judicial notice.

     The doctrine of judicial estoppel prevents a party from
asserting a claim in a legal proceeding that is inconsistent with
a position successfully taken by that party in a previous
proceeding. New Hampshire v. Maine, 532 U.S. 742, 749 (2001).
Among the requirements for judicial estoppel to be invoked, a
party’s current litigating position must be “clearly
inconsistent” with a prior litigating position. Id. at 750-751.
Petitioner has failed to identify any clear inconsistencies
between respondent’s current position and his position in any
previous litigation.
                               - 5 -

were assessed against petitioner for 1989 and 1991 because of the

underreporting.4

     On August 23, 2002, respondent mailed petitioner a Letter L-

1058, Final Notice of Intent to Levy and Notice of Your Right to

a Hearing.   The notice informed petitioner that respondent

proposed to levy on his property to collect Federal income taxes

owed for 1989 and 1991.   The notice advised petitioner he was

entitled to a hearing with respondent’s Appeals Office to review

the propriety of the proposed levy.    On August 29, 2002,

petitioner submitted a Form 12153, Request for a Collection Due

Process Hearing.   Petitioner indicated he would pursue an offer-

in-compromise based on effective tax administration and would

provide financial information upon request.

     On March 11, 2003, Appeals received petitioner’s original

Form 656, Offer in Compromise, with a completed Form 433-A,

Collection Information Statement for Wage Earners and Self-

Employed Individuals, offering to pay $102,000 to compromise his

outstanding tax liability.   Petitioner offered to compromise his

outstanding 1985-95 tax liabilities on the grounds of doubt as to




     4
       TBS 1989-1, one of the partnerships in which petitioner
invested, was involved in a consolidated case decided by this
Court in Durham Farms #1, J.V. v. Commissioner, T.C. Memo. 2000-
159, affd. 59 Fed. Appx. 952 (9th Cir. 2003). As a result of
that case, computational adjustments were made, and, on May 13,
2002, additional income tax and interest were assessed against
petitioner for 1989 and 1991.
                               - 6 -

liability and effective tax administration.   On March 30, 2004, a

section 6330 telephone hearing was held between Settlement

Officer Linda Cochran (Ms. Cochran) and petitioner’s attorney,

during which petitioner’s attorney argued that:   (1) Appeals

should accept the offer as a matter of equity and public policy;

(2) the collection activity should be limited to taxes owed for

1989 and 1991 until the Tax Court decides the pending interest

and penalty cases;5 and (3) petitioner did not have an

opportunity to be heard during the examination process.

     On May 3, 2004, petitioner submitted to Ms. Cochran a

revised Form 656 dated March 24, 2004, with a revised completed

Form 433-A dated March 22, 2004, offering to pay $102,000 to

compromise a liability of approximately $230,000 for 1987-96.

Petitioner offered to compromise his outstanding tax liabilities

not only for the years subject to the proposed collection action,

but also for the liabilities arising from his 1987-88, 1990, and

1992-96 tax years.6   The revised offer-in-compromise was




     5
       On Apr. 28, 2005, a stipulated decision was entered in
McDonough v. Commissioner, docket. No. 18866-03, an interest
abatement proceeding for 1989 through 1991, in which the Court
ordered and decided that petitioner was not entitled to an
abatement of interest under sec. 6404(e) for those years. To
date, no decision has been made by the Court in McDonough v.
Commissioner, docket No. 15239-04.
     6
       At the time of the sec. 6330 hearing, the taxes,
penalties, and interest for 1987-88, 1990, and 1992-96 were
unassessed.
                                - 7 -

submitted on the grounds of doubt as to liability7 and effective

tax administration.    Petitioner’s revised Form 433-A reported no

future income potential and assets with a total current value of

$232,436, including the following:8

                  Assets                Current Value

          Cash                            $52,251
          Stock                            25,404
          Furniture                           960
          Vehicles                         64,821
          Real property(one-half
          interest)1                       89,000

          Total                           232,436
     1
      The real property consisted of petitioner and his wife’s
house in Westminster, California and property they owned in
Prescott, Arizona.

     The Form 433-A also reported the following monthly items of

income and expenses:

          Total Income                         Amount

          Wages                                $8,110

          Total Living Expenses

          Food, clothing, and miscellaneous    $2,335
          Housing and utilities                 2,742
          Transportation                          705
          Health care                           1,747
          Taxes (income)                        1,225
          Life insurance                           28



     7
       The doubt as to liability issues were not argued on brief
and not considered here.
     8
       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”.
                                - 8 -

            Other expenses (attorney’s fees)         728

            Total                                  9,510

     Ms. Cochran determined that petitioner’s net realizable

equity in each of his reported assets was the same as its

reported value except that she reduced the reported value of the

stock and of each vehicle by 20 percent to reflect the assets’

quick sale value and increased the reported values of

petitioner’s house and Arizona property because they had not been

based upon current appraisals and current market prices.        Ms.

Cochran summarized petitioner’s assets and liabilities as

follows:9

                    Assets                     Current Value

            Cash                                  $52,251
            Stock                                  20,323
            Furniture                                 960
            Vehicles                               51,856
            Real property(one-half
            interest)                             171,500

            Total                                 296,890

     Using petitioner’s average income over 38 months, she

determined his monthly income was $11,012, not $8,110.         As to the

reported expenses, Ms. Cochran disallowed actual expenses for

food, clothing, and miscellaneous; housing and utilities; and

transportation, and applied the national and local standard


     9
       This amount does not include the value of petitioner’s
pension. Petitioner testified that under his pension he will
receive 82 percent of his current gross income of approximately
$102,000 plus an annual cost of living raise of 2.5 percent
                                   - 9 -

allowances to those items.      Ms. Cochran increased the tax expense

to reflect the increased amount of determined income.     As

adjusted, the following were the determined monthly items of

expenses:

                    Total Living Expenses        Amount

            Food, clothing, and miscellaneous    $1,271
            Housing and utilities                 1,603
            Transportation                          471
            Health care                           1,747
            Taxes (income)                        2,000
            Life insurance                           28
            Other expenses (attorney’s fees)        728

            Total                                 7,848

     Ms. Cochran determined that petitioner’s monthly excess

income (i.e., monthly income less monthly expenses) was $3,164

($11,012 - $7,848), his income potential for the next 116 months

was approximately $367,024 ($3,164 x 116 months = $367,024),10

and the reasonable collection potential was $663,914 (income

potential of $367,024 + net realizable equity of $296,890).

     On December 16, 2004, respondent issued petitioner a notice

of determination sustaining the proposed levy with the provision

that the collection activity will not include the collection of

interest or penalties until the interest and penalty cases were



     10
       In the notice, Ms. Cochran mistakenly used a 116-month
factor to determine petitioner’s income potential. On brief,
respondent corrected the mistake by using a 48-month factor as
required when a taxpayer makes a cash offer. As a result,
petitioner’s correct income potential was $151,872 ($3,164 x 48 =
$151,872). See Internal Revenue Manual (IRM) sec. 5.8.5.5.
                              - 10 -

decided.   The notice concluded petitioner’s $102,000 offer-in-

compromise was not an adequate collection alternative to the

proposed levy because petitioner had the ability to pay $448,762.

     The notice, citing Internal Revenue Manual (IRM) sections

5.8.11.2.1 and 5.8.11.2.2, stated that petitioner’s offer did not

meet the Commissioner’s guidelines for consideration as an

offer-in-compromise to promote effective tax administration.

Specifically, the notice stated:

          Considered under economic hardship, the taxpayer
     has the ability to pay all assessed amounts and still
     have assets remaining with equity worth over $200,000
     in addition to an income stream of over $350,000. The
     taxpayer’s representative contended that the taxpayer
     was being evaluated for possible disability. The
     Settlement Officer noted, however, that no actual
     disability has been documented to date. The present
     offer, therefore, must be considered within the
     framework of present facts. As such, the taxpayer
     failed to document economic hardship with or without
     special circumstances, in accordance with Internal
     Revenue Manual 5.8.11.2.1.


     When considered under public policy or equity grounds, the
taxpayer’s Effective Tax Administration offer proposal fails to
meet the criteria for such consideration under Internal Revenue
Manual 5.8.11.2.2. For the reasons set forth in No. 1 above, the
taxpayer’s offer as an Effective Tax Administration offer based
on public policy or equity grounds, therefore, cannot be
considered.

     In response to the notice of determination, petitioner filed

his petition with this Court on January 19, 2005.
                               - 11 -

                              OPINION

I.    Standard of Review

      Because the underlying tax liability is not at issue, this

Court’s review under section 6330 is for abuse of discretion.

See Sego v. Commissioner, 114 T.C. 604, 610 (2000); Goza v.

Commissioner, 114 T.C. 176, 182 (2000).     This standard does not

require the Court to decide whether petitioner’s offer-in-

compromise should have been accepted, but whether respondent’s

rejection of the offer was arbitrary, capricious, or without

sound basis in fact or law.   See Woodral v. Commissioner, 112

T.C. 19, 23 (1999); Keller v. Commissioner, T.C. Memo. 2006-166;

Fowler v. Commissioner, T.C. Memo. 2004-163.

II.   Petitioner’s Offer-in-Compromise

      Section 7122(a) provides that “The Secretary may compromise

any civil * * * case arising under the internal revenue laws”.

Whether to accept an offer-in-compromise is left to the

Secretary’s discretion.    Fargo v. Commissioner, 447 F.3d 706, 712

(9th Cir. 2006), affg. T.C. Memo. 2004-13; sec. 301.7122-1(c)(1),

Proced. & Admin. Regs.

      The regulations under section 7122 set forth three grounds

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

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

effective tax administration (ETA).     Sec. 301.7122-1(b), Proced.
                                - 12 -

& Admin. Regs.     Doubt as to liability and doubt as to

collectibility11 are not at issue in this case.

     Petitioner proposed an offer-in-compromise based on ETA,

offering to pay $102,000 to compromise his estimated outstanding

tax liability of $230,000.     Petitioner argued that collection of

the full liability would create economic hardship and that

compelling public policy or equity considerations provide a

sufficient basis for compromising the liability.     Respondent

determined petitioner’s reasonable collection potential was

$663,914, and thus, petitioner’s offer did not meet the criteria

for an offer-in-compromise based on ETA.

     A tax liability may be compromised on the ground of ETA

when:     (1) Collection of the full liability will create economic

hardship; or (2) compelling public policy or equity

considerations provide a sufficient basis for compromising the

liability; and (3) compromise of the liability would not

undermine compliance by taxpayers with the tax laws.       Sec.

301.7122-1(b)(3), Proced. & Admin. Regs.




     11
       Petitioner alleged respondent erred by not finding there
was doubt as to collectibility. However, petitioner did not
present information to substantiate this claim and did not argue
it on brief. This Court concludes petitioner has abandoned this
argument.
                              - 13 -

     A.   Economic Hardship

     Petitioner asserts that Ms. Cochran abused her discretion by

rejecting his offer-in-compromise because “There is no indication

that SO Cochran gave any substantive consideration to

petitioner’s demonstrated special circumstances or that he would

experience a hardship if required to make a full-payment.”     In

support of this assertion, petitioner argues Ms. Cochran:     (1)

Failed to adequately consider his health issues; (2) failed to

consider that because of current and future health issues

petitioner will retire early, causing his income to decrease; (3)

improperly valued petitioner’s real property; and (4) failed to

use actual housing and utility expenses to determine his total

monthly living expenses.

     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 examples.    One example

involves a taxpayer who provides full-time care to a dependent

child with a serious long-term illness.   A second example

involves a taxpayer who would lack adequate means to pay his

basic living expenses if his only asset was liquidated.    The

third example involves a disabled taxpayer who has a fixed income
                              - 14 -

and a modest home specially equipped to accommodate his

disability, and who is unable to borrow 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 all “describe

more dire circumstances”.   Speltz v. Commissioner, 454 F.3d 782,

786 (8th Cir. 2006), affg. 124 T.C. 165 (2005); see also Barnes

v. Commissioner, T.C. Memo. 2006-150.     Nevertheless, we will

address petitioner’s arguments.

          1.   Discussion of Special Circumstances in the Notice
               of Determination

     Petitioner argues that Ms. Cochran failed “to follow proper

procedure by [not] discussing Petitioner’s special circumstances,

what equity was considered in relation to his special

circumstances, and how the special circumstances affected her

determination of his ability to pay.”     Petitioner infers that,

because the notice of determination did not discuss the special

circumstances in detail, Ms. Cochran failed to adequately take

petitioner’s circumstances into consideration.

     This Court does not believe that Appeals must specifically

list in the notice of determination every single fact it

considers in arriving at a determination.     See Barnes v.

Commissioner, supra.   This is especially true in a case such as

this, where petitioner provided Ms. Cochran with multiple letters

and hundreds of pages of exhibits.     Ms. Cochran considered all of
                             - 15 -

the arguments and information presented to her.   Given the amount

of information, it would be unreasonable to require her to

specifically address in the notice of determination every single

asserted fact, circumstance, and argument presented.   The fact

that all of the information presented was not specifically

addressed in the notice of determination does not indicate an

abuse of discretion.

          2.   Petitioner’s Medical Expenses and Possible
               Retirement

     Petitioner argues Ms. Cochran failed to adequately consider

his declining health, the likelihood his health problems will

require early retirement, and possible future increases in

medical expenses.

     Included in the documentation provided to Ms. Cochran were

letters from petitioner’s doctors stating that he suffers from

work-related injuries to his lumbar, cervical, and thoracic

spine, his wrists, and his right elbow, resulting in multiple

medical procedures, including pain management therapy.

Petitioner asserted the severity of his injuries will force him

to retire in the near future and presented a letter from his

doctor indicating his injuries “may” lead to future disability.

     In the notice of determination, Ms. Cochran stated:    “the

taxpayer’s representative contended that the taxpayer was being

evaluated for possible disability”.   However, no actual

disability was documented, and no evidence was produced
                              - 16 -

indicating petitioner’s present or future medical expenses will

cause him to be unable to pay his basic living expenses.    As to

petitioner’s asserted increasing expenses due to health problems,

Ms. Cochran determined that “the taxpayer failed to document

economic hardship” and the present offer “must be considered

within the framework of present facts”.

     Petitioner reported monthly medical expenses of $1,747 on

his Form 433-A, which Ms. Cochran accepted.   Petitioner did not

report or substantiate future amounts of increased medical

expenses.   Given the information presented to her, it was not

arbitrary or capricious for Ms. Cochran to ignore speculative

future medical costs when making her final determination.

Therefore, this Court rejects petitioner’s assertion that Ms.

Cochran failed to consider his current and future medical costs.

      Petitioner also asserts that Ms. Cochran abused her

discretion by using a longer period (116 months) for evaluating

income from future earnings when petitioner stated he would

retire early because of health problems.   Although petitioner

stated he may retire, he did not state that he would retire by a

certain date or that there was a mandatory retirement age.

     Even when a 48-month period is used to determine future

earnings, petitioner’s income potential of $151,872 still exceeds
                               - 17 -

his offer of $102,000.12   Given the information presented, it was

not arbitrary or capricious that Ms. Cochran was not persuaded by

petitioner’s statements of possible retirement when evaluating

his income from future earnings.

          3.     Petitioner’s Property

     Petitioner argues Ms. Cochran improperly increased the

value of his house and his Arizona property.   On his Form 433-A,

petitioner reported the estimated fair market value of his house

was $460,000, with an 80-percent quick-sale value of $368,000 and

an outstanding encumbrance of $369,000.   Petitioner’s estimate

was based on a professional appraisal dated May 8, 2003.   Ms.

Cochran testified she did not accept petitioner’s reported value

because the appraisal was over a year old and no longer reflected

current value.   Instead, she determined a value of $550,000,

using recent comparable sales.13



     12
       Ms. Cochran testified at trial that she originally erred
by calculating income potential over 116 months and a 48-month
factor was the correct figure to determine income potential
because petitioner made a cash offer.
     13
       Ms. Cochran testified at trial that she was not required
to use a quick-sale value (80 percent of fair market value) for
the real property because, as she determined, it could reasonably
sell within 90 days. The 90-day period was used because,
pursuant to the Form 656, the cash offer had to be paid within 90
days from written notice of acceptance of the offer.

     Ms. Cochran credited petitioner with a half interest in each
property because his wife owned a half interest in each property.
                               - 18 -

       On his Form 433-A, petitioner reported the estimated fair

market value of his Arizona property at 1015 Fair Street

Prescott, AZ 86305, as $87,000, with an 80-percent quick-sale

value of $69,600 and an outstanding encumbrance of zero.

Petitioner’s estimate was based upon the Yavapai County, Arizona,

Assessor’s Office appraisal dated January 31, 2003.    Ms. Cochran

discovered petitioner had given her the Yavapai County Assessor’s

address, not the property’s actual location.    The Arizona

property was at 2320 West Live Oak Drive, Prescott, AZ.    Ms.

Cochran did not accept petitioner’s reported value.    Instead, she

determined the property’s value at $150,000 using recent

comparable sales.

       Assuming petitioner’s professional appraisal and assessor

valuation should have been accepted, this Court would not find

Ms. Cochran abused her discretion in rejecting petitioner’s

offer-in-compromise based on economic hardship.    On his Form 433-

A, petitioner reported assets with a total value of $232,436 and

income potential of approximately $151,872.    However, petitioner

offered to pay only $102,000 to compromise his outstanding tax

liabilities.    This Court finds Ms. Cochran did not abuse her

discretion by rejecting an offer-in-compromise that bore no

relationship to petitioner’s own calculations of his ability to

pay.
                              - 19 -

          4.    Petitioner’s Other “Financial Circumstances”

     Petitioner argues that pursuant to section 7122(c)(2),

respondent was required to include actual housing and utility

expenses when determining his total monthly living expenses, not

the Internal Revenue Service standard allowances.     Section

7122(c)(2) provides that the Secretary shall publish standard

allowances for basic living expenses.     The Commissioner may

depart from standard allowances where “such use would result in

the taxpayer not having adequate means to provide for basic

living expenses.”   Sec. 7122(c)(2)(B).

     Ms. Cochran determined petitioner’s circumstances “[were]

not sufficient to deviate from the local guideline amounts”.

Petitioner did not produce evidence indicating he would not have

adequate means to provide for his basic living expenses.     Ms.

Cochran did not abuse her discretion by using standard allowances

instead of petitioner’s actual housing and utility expenses.

     Petitioner also asserts Ms. Cochran abused her discretion by

failing to inquire about changes in his financial circumstances

after the offer-in-compromise had been submitted.     The record

does not indicate petitioner’s financial situation had

substantially changed from the date the offer was submitted on

March 24, 2000, through the date of its denial on December 16,

2004.   Ms. Cochran did not abuse her discretion.
                                - 20 -

            5.   Encouraging Voluntary Compliance With the Tax Laws

     Any decision by Ms. Cochran to accept petitioner’s offer-in-

compromise because of ETA based on economic hardship must be

viewed against the backdrop of section 301.7122-1(b)(3)(iii),

Proced. & Admin. Regs.14   See Barnes v. Commissioner, T.C. Memo.

2006-150.   This section requires Ms. Cochran to deny petitioner’s

offer if its acceptance would undermine voluntary compliance with

tax laws by taxpayers in general.    Thus, even if this Court were

to assume arguendo that petitioner would suffer economic

hardship, a finding that it declines to make, this Court would

not find that Ms. Cochran’s rejection of petitioner’s offer was

an abuse of discretion.    As discussed below (in our discussion of

petitioner’s “equitable facts” argument), acceptance of

petitioner’s offer would undermine voluntary compliance with tax

laws by taxpayers in general.

     B.     Public Policy and Equity Considerations

     Petitioner asserts that “There are so many unique and

equitable facts in this case that this case is an exceptional

circumstance” and respondent abused his discretion by not

accepting those facts as grounds for an offer-in-compromise.     In

support of his assertion, petitioner argues that:     (1) The

longstanding nature of this case justifies acceptance of the


     14
        The prospect that acceptance of an offer will undermine
compliance with the tax laws militates against its acceptance.
See also Barnes v. Commissioner, T.C. Memo. 2006-150.
                              - 21 -

offer-in-compromise; (2) respondent’s reliance on an example in

the Internal Revenue Manual was improper; and (3) respondent

failed to consider petitioner’s other “equitable facts”.

          1.    Longstanding Case

     Petitioner asserts that the legislative history requires

respondent to resolve “longstanding” cases by forgiving penalties

and interest which would otherwise apply.    Petitioner argues

that, because this is a longstanding case, respondent abused his

discretion by failing to accept his offer-in-compromise.

     Petitioner’s argument is essentially the same one considered

and rejected by the Court of Appeals for the Ninth Circuit in

Fargo v. Commissioner, 447 F.3d at 711-712.     See also Keller v.

Commissioner, T.C. Memo. 2006-166; Barnes v. Commissioner, supra.

The Court rejects petitioner’s argument for the same reasons

stated by the Court of Appeals.     The Court adds that petitioner’s

counsel participated in the appeal in Fargo as counsel for the

amici.   On brief, petitioner suggests that the Court of Appeals

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., petitioner), and to otherwise allow those

clients’ liabilities for penalties and interest to be forgiven.

The Court does not read the opinion of the Court of Appeals in

Fargo to support that conclusion.    See Keller v. Commissioner,

supra; Barnes v. Commissioner, supra.
                                - 22 -

     Respondent’s rejection of petitioner’s longstanding case

argument was not arbitrary or capricious.

          2.      The Internal Revenue Manual Example

     Petitioner argues that respondent erred when he determined

that petitioner was not entitled to relief according to the

second example in IRM section 5.8.11.2.2(3).     Petitioner asserts

that many of the facts in this case were not present in the

example and, therefore, any reliance on the example was

misplaced.     Petitioner’s argument is not persuasive.

     IRM section 5.8.11.2.2(3) discusses ETA offers-in-compromise

based on equity and public policy grounds and states in the

second example:

     In 1983, the taxpayer invested in a nationally marketed
     partnership which promised the taxpayer tax benefits
     far exceeding the amount of the investment.
     Immediately upon investing, the taxpayer claimed
     investment tax credits that significantly reduced or
     eliminated the tax liabilities for the years 1981
     through 1983. In 1984, the IRS opened an audit of the
     partnership under the provisions of the Tax Equity and
     Fiscal Responsibility Act of 1982 (TEFRA). After
     issuance of the Final Partnership Administrative
     Adjustment (FPAA), but prior to any proceedings in Tax
     Court, the IRS made a global settlement offer in which
     it offered to concede a substantial portion of the
     interest and penalties that could be expected to be
     assessed if the IRS’s determinations were upheld by the
     court. The taxpayer rejected the settlement offer.
     After several years of litigation, the partnership
     level proceeding eventually ended in Tax Court
     decisions upholding the vast majority of the
     deficiencies asserted in the FPAA on the grounds that
     the partnership’s activities lacked economic substance.
     The taxpayer has now offered to compromise all the
     penalties and interest on terms more favorable than
     those contained in the prior settlement offer, arguing
                               - 23 -

     that TEFRA is unfair and that the liabilities accrued
     in large part due to the actions of the Tax Matters
     Partner (TMP) during the audit and litigation. Neither
     the operation of the TEFRA rules nor the TMP’s actions
     on behalf of the taxpayer provide grounds to compromise
     under the equity provision of paragraph (b)(4)(i)(B) of
     this section. Compromise on those grounds would
     undermine the purpose of both the penalty and interest
     provisions at issue and the consistent settlement
     principles of TEFRA. * * *

1 Administration, Internal Revenue Manual (CCH), sec.

5.8.11.2.2(3), at 16,378.   Ms. Cochran determined that

petitioner’s case is similar to the example:

     Some of the most obvious similarities--the year, pretty
     old, and that seems to match or correlate to the
     taxpayer’s circumstances, that this was a TEFRA
     proceeding, that an FPAA was issued, * * * They
     rejected a settlement offer that had been previous--
     that the IRS had previously made. The taxpayers
     entered litigation for a number of years. And--and
     that there were actions of the TMP that the taxpayer
     was raising issues of tax-motivated--TMP’s actions as
     one of his arguments.

The Court agrees with respondent that the example presents

similar circumstances to those in petitioner’s case.    Ms.

Cochran’s testimony accurately reflects those similarities.

     Petitioner is correct in asserting that not all the facts in

his case are present in the example.    However, it is unreasonable

to expect that facts in an example be identical to facts of a

particular case before the example can be relied upon.    The

Internal Revenue Manual example was only one of many factors

respondent considered.   Given the similarities to petitioner’s
                              - 24 -

case, respondent’s reliance on that example was not arbitrary or

capricious.

          3.   Petitioner’s Other “Equitable Facts”

     Petitioner argues that respondent abused his discretion by

failing to consider the other “equitable facts” of this case.

Petitioner’s “equitable facts” include reference to:     (1)

Petitioner’s reliance on Bales v. Commissioner, T.C. Memo. 1989-

568;15 (2) petitioner’s reliance on Hoyt’s enrolled agent status;

(3) Hoyt’s criminal conviction; (4) Hoyt’s fraud on petitioner;

and (5) other letters and cases.   The basic thrust of

petitioner’s argument is that he was defrauded by Hoyt and that,

if he were held responsible for penalties and interest incurred

as a result of his investment in a tax shelter, it would be

inequitable and against public policy.   Petitioner’s argument is

not persuasive.




     15
        Bales v. Commissioner, T.C. Memo. 1989-568, involved
deficiencies determined against various investors in several Hoyt
partnerships. This Court found in favor of the investors on
several issues, stating that “the transaction in issue should be
respected for Federal income tax purposes.” Taxpayers in many
Hoyt-related cases have used Bales as the basis for a reasonable
cause defense to accuracy-related penalties. This argument has
been uniformly rejected by this Court and by the Courts of
Appeals for the Sixth and Tenth Circuits. See, e.g., Mortensen
v. Commissioner, 440 F.3d 375, 390-391 (6th Cir. 2006), affg.
T.C. Memo. 2004-279; Van Scoten v. Commissioner, 439 F.3d 1243,
1254-1256 (10th Cir. 2006), affg. T.C. Memo. 2004-275; Sanders v.
Commissioner, T.C. Memo. 2005-163; Hansen v. Commissioner, T.C.
Memo. 2004-269.
                               - 25 -

     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 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.

Unlike the exceptional circumstances exemplified in the

regulations, petitioner’s situation is neither unique nor

exceptional in that his situation mirrors those of numerous other

taxpayers who claimed tax shelter deductions in the 1980s and

1990s.    See Keller v. Commissioner, T.C. Memo. 2006-166; Barnes

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

     Of course, the examples in the regulations are not meant to

be exhaustive, and petitioner has a more sympathetic case than

the taxpayers in Fargo v. Commissioner, 447 F.3d at 714, for 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 the Hoyt tax shelters

to be liable for penalties and interest, nor have they prevented

the Courts of Appeals for the Sixth and Tenth Circuits from
                              - 26 -

affirming our decisions to that effect.   See Mortensen v.

Commissioner, 440 F.3d 375 (6th Cir. 2006), affg. T.C. Memo.

2004-279; Van Scoten v. Commissioner, 439 F.3d 1243 (10th Cir.

2006), affg. T.C. Memo. 2004-275.

     Ms. Cochran testified that she considered all of

petitioner’s assertions, including the numerous letters and

exhibits.   Nevertheless, Ms. Cochran determined that petitioner

did not qualify for an offer-in-compromise.

     The mere fact that petitioner’s “equitable facts” did not

persuade respondent to accept petitioner’s offer-in-compromise

does not mean that those assertions were not considered.     The

notice of determination and Ms. Cochran’s testimony demonstrate

respondent’s clear understanding and careful consideration of the

facts and circumstances of petitioner’s case.   The Court finds

that respondent’s determination that the “equitable facts” did

not justify acceptance of petitioner’s offer-in-compromise was

not arbitrary or capricious and thus was not an abuse of

discretion.

     The Court finds that 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
                               - 27 -

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.

     C.   Petitioner’s Other Arguments

          1.     Compromise of Penalties and Interest in an
                 ETA Offer-in-Compromise

     Petitioner advances a number of arguments focusing on his

assertion that respondent determined that penalties and interest

could not be compromised in an ETA offer-in-compromise.

Petitioner argues that such a determination is contrary to

legislative history and is therefore an abuse of discretion.

These arguments are not persuasive.

     The regulations under section 7122 provide that “If the

Secretary determines that there are grounds for compromise under

this section, the Secretary may, at the Secretary’s discretion,

compromise any civil * * * liability arising under the internal

revenue laws”.   Sec. 301.7122-1(a)(1), Proced. & Admin. Regs.     In

other words, the Secretary may compromise a taxpayer’s tax

liability if he determines that grounds for a compromise exist.

If the Secretary determines that grounds do not exist, the amount
                               - 28 -

offered (or the way in which the offer is calculated) need not be

considered.

     Petitioner’s arguments regarding the compromise of penalties

and interest do not relate to whether there are grounds for a

compromise.    Instead, these arguments go to whether the amount

petitioner offered to compromise his tax liability was

acceptable.    As addressed above, respondent’s determination that

the facts and circumstances of petitioner’s case did not warrant

acceptance of his offer-in-compromise was not arbitrary or

capricious and was thus not an abuse of discretion.   Because no

grounds for compromise exist, this Court need not address whether

respondent can or should compromise penalties and interest in an

ETA offer-in-compromise.   See Keller v. Commissioner, supra.

          2.     Information Sufficient for the Court to Review
                 Respondent’s Determination

     Petitioner argues that respondent failed to provide the

Court with sufficient information “so that this Court can conduct

a thorough, probing, and in-depth review of respondent’s

determinations.”    Petitioner’s argument is without merit.

     Generally, a taxpayer bears the burden of proving the

Commissioner’s determinations incorrect.    Rule 142(a)(1); Welch

v. Helvering, 290 U.S. 111, 115 (1933).16   The burden was on


     16
        While sec. 7491 shifts the burden of proof and/or the
burden of production to the Commissioner in certain
circumstances, this section is not applicable in this case
                                                    (continued...)
                              - 29 -

petitioner to show that respondent abused his discretion.    The

burden was not on respondent to provide enough information to

show that he did not abuse his discretion.   Nevertheless, this

Court finds that it had more than sufficient information to

review respondent’s determination.

          3.    Scheduling of the Section 6330 Hearing and
                Deadline for Submission of Documents

     Petitioner argues that Ms. Cochran abused her discretion by

not allowing his counsel additional time to prepare for the

section 6330 hearing and to submit additional documentation.

Once the section 6330 hearing was scheduled, Ms. Cochran refused

petitioner’s request to delay the hearing.   However, Ms. Cochran

did extend the deadline for submission of documents.

     While petitioner wanted to delay the section 6330 hearing,

he does not allege that he was unable to adequately prepare for

the hearing.   Additionally, petitioner has not identified any

documents or other information that he believes Ms. Cochran

should have considered but that he was unable to produce because

of the deadline for submission.   Given the thoroughness and the

amount of information submitted, it is unclear why petitioner

needed additional time.   This Court does not believe that Ms.



     16
      (...continued)
because respondent’s examination of petitioner’s returns did not
commence after July 22, 1998. See Internal Revenue Service
Restructuring and Reform Act of 1998, Pub. L. 105-206, sec.
3001(c), 112 Stat. 727.
                               - 30 -

Cochran abused her discretion by establishing a timeframe for the

section 6330 hearing and the submission of documents.

          4.     Efficient Collection Versus Intrusiveness

     Petitioner argues that respondent failed to balance the need

for efficient collection of taxes with the legitimate concern

that the collection action be no more intrusive than necessary.

See sec. 6330(c)(3)(C).   Petitioner’s argument is not supported

by the record.

     Petitioner has an outstanding tax liability.   In his section

6330 hearing, petitioner proposed only an offer-in-compromise.

Because no other collection alternatives were proposed, there

were no less intrusive means for respondent to consider. The

Court finds that respondent balanced the need for efficient

collection of taxes with petitioner’s legitimate concern that

collection be no more intrusive than necessary.

     In reaching these holdings, the Court has considered all

arguments made and, to the extent not mentioned, concludes that

they are moot, irrelevant, or without merit.

     To reflect the foregoing,



                                               Decision will be

                                          entered for respondent.
