                        T.C. Memo. 2007-56



                      UNITED STATES TAX COURT



             GARY AND JOHNEAN HANSEN, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 11175-05L.               Filed March 8, 2007.



     Terri A. Merriam, Jaret R. Coles, Asher B. Bearman, and

Jennifer A. Gellner, for petitioners.1

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




             MEMORANDUM FINDINGS OF FACT AND OPINION


     LARO, Judge:   Petitioners petitioned the Court under section

6330(d) to review the determination of respondent’s Office of


     1
       Pursuant to their requests, Jennifer A. Gellner and Asher
B. Bearman were allowed to withdraw on Nov. 14 and 20, 2006,
respectively.
                                 - 2 -

Appeals (Appeals) sustaining a proposed levy related to

petitioners’ 1989 Federal income tax year.2    Petitioners argue

the proposed levy is improper because, they state, Appeals was

required to accept their offer of $90,258 to compromise what they

estimate is their $260,143 Federal income tax liability

(inclusive of additions to tax, penalties, and interest) for 1987

through 1998.3    We decide whether Appeals abused its discretion

in rejecting that offer.4    We hold it did not.

                           FINDINGS OF FACT

     The parties filed with the Court stipulations of fact and

accompanying exhibits.    The stipulated facts are found

accordingly.     When the petition was filed, petitioners resided in

Kennewick, Washington.

     Beginning in 1987, petitioners’ Federal income tax returns

claimed losses and credits from their investment in partnerships

organized and operated by Walter J. Hoyt III (Hoyt).    One of



     2
       Unless otherwise indicated, section references are to the
applicable versions of the Internal Revenue Code. Dollar amounts
are rounded.
     3
       Petitioners submitted to respondent Form 656, Offer in
Compromise, indicating that they were offering to compromise
their tax liability for 1987 through 1996. Petitioners included
with that submission a letter in which they stated that they
wished to compromise their tax liability for 1987 through 1998.
We read petitioners’ offer to include 1987 through 1998.
     4
       While the petition references sec. 6621(c) interest,
respondent did not determine that petitioners were liable for
such interest in the referenced years. We express no opinion on
the subject.
                               - 3 -

these partnerships was Timeshare Breeding Service 1989-1 (TBS).

Hoyt was TBS’s general partner and tax matters partner, and TBS

was subject to the unified audit and litigation procedures of the

Tax Equity and Fiscal Responsibility Act of 1982, Pub. L. 97-248,

sec. 402(a), 96 Stat. 648.   Hoyt was convicted on criminal

charges relating to the promotion of TBS and other partnerships.

     Petitioners’ claim to losses and credits passing to them

from TBS resulted in the underreporting of their 1989 taxable

income.5   On October 22, 2002, respondent mailed to petitioners a

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

Right to a Hearing.   The notice informed petitioners that

respondent proposed to levy on their property to collect Federal

income tax (and any related amount) that they owed for 1989.     The

notice advised petitioners that they were entitled to a hearing

with Appeals to review the propriety of the proposed levy.

     On November 18, 2002, petitioners asked Appeals for the

referenced hearing.   On January 11, 2005, Linda Cochran

(Cochran), a settlement officer in Appeals, held the hearing with

petitioners’ counsel.   Cochran and petitioners’ counsel discussed

two issues.   The first issue concerned petitioners’ intent to

offer to compromise their 1987 through 1998 Federal income tax



     5
       Petitioners’ claim to losses and credits passing to them
from other Hoyt partnerships was the subject of an affected items
proceeding in this Court. See Hansen v. Commissioner, T.C. Memo.
2004-269, affd. 471 F.3d 1021 (9th Cir. 2006).
                                - 4 -

liability to promote effective tax administration.    Petitioners

contended that Appeals should accept their offer as a matter of

equity and public policy.   Petitioners stated that it took a long

time to resolve the Hoyt partnership cases and noted that Hoyt

had been convicted on the criminal charges.    The second issue

concerned an interest abatement case under section 6404(e) that

petitioners then had pending in this Court at docket No.

18896-03.   That case related to 1989, the year at issue here, and

petitioners claimed that the proposed levy should be rejected

because the case was pending.    On April 28, 2005, the Court

entered a decision in that case stating that the parties agreed

that petitioners were not entitled for 1989 to an abatement of

interest under section 6404.    That decision is now final.

     On February 15, 2005, petitioners tendered to Cochran on

Form 656, Offer in Compromise, a written offer to pay $90,258 to

compromise their estimated $260,143 liability.    The offer was

limited to a claim of effective tax administration because

petitioners had sufficient assets to pay their tax liability in

full.   Petitioners supplemented their offer with a completed Form

433-A, Collection Information Statement for Wage Earners and

Self-Employed Individuals, four letters totaling approximately 65

pages, and volumes of documents.    The Form 433-A reported that
                               - 5 -

petitioners owned assets with a total current value of $311,994,

inclusive of the following:6

                      Assets                 Current value

          Cash in accounts                    $101,981
          Retirement accounts                  120,903
          Vehicles:
            1992 Chevy Lumina                      200
            1993 Mercury Villager                1,340
            1999 Buick LeSabre                   3,230
            Home                                84,340
                                               311,994

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

income and expense:

         Items of income                     Amount

         Husband’s wages                     $8,512
         Wife’s wages                         3,427
                                             11,940 (as rounded)

         Items of expense                    Amount

         Food, clothing, and miscellaneous   $2,000
         Housing and utilities                1,500
         Transportation                         300
         Medical expenses                       400
         Taxes                                4,000
         Life insurance                         227
         Other expenses                         275
                                              8,702

     Cochran determined that petitioners’ net realizable equity

in their cash was either the $101,981 reported in their bank




     6
       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”.
                                 - 6 -

accounts or $96,9547 and that petitioners’ net realizable equity

in their retirement accounts and home was the same as the

reported values.     Cochran also reduced the values of petitioners’

vehicles by 20 percent to reflect their “quick sale values”.8

Cochran summarized petitioners’ assets and liabilities as

follows:
                               Fair      Quick                     Net
                               market    sale    Encumbrance     realizable
            Assets             value     value   or exemption      equity

  Cash                       $101,981     --         --         $101,981/
                                                                  96,954
  Retirement accounts         120,903     --         --          120,903
  Vehicles:
    1992 Chevy Lumina             200     $160       --               160
    1993 Mercury Villager       1,340    1,072       --             1,072
    1999 Buick LeSabre          3,230    2,584       --             2,584
  Real Estate                  84,340      –-        –-            84,340
                                                                1
                              311,994    3,816       $0           311,200/
                                                                  306,013
     1
       Petitioners’ net realizable equity is actually $311,040.
  This slight mathematical error is not significant to the
  overall calculation.

Cochran made three adjustments to petitioners’ reported expenses.

First, she allowed $1,280 (instead of $2,000) for monthly food,

clothing, and miscellaneous expenses.       Cochran made this


     7
       Cochran arrived at the latter figure by reducing the
amount of cash in petitioners’ bank accounts by the cash they
proposed to pay as part of the offer-in-compromise. Petitioners
stated on their Form 656 that “The taxpayers have placed a total
of $85,231 on account as advance deposits; the remainder is from
cash assets.” Cochran subtracted the claimed advance deposits
($85,231) from the offer amount ($90,258) and reduced the net
realizable equity by $5,027 (from $101,981 to $96,954).
     8
       Cochran was told by petitioners that they had ascertained
the value of each vehicle by using its trade-in value and
considering its condition to be “fair.”
                               - 7 -

adjustment in accordance with respondent’s national guideline

amounts based on petitioners’ monthly income and household size.

Cochran also considered petitioners’ particular circumstances but

noted that they did not warrant allowing the higher figure

submitted by petitioners.   Second, Cochran allowed $1,093

(instead of $1,500) for monthly housing expenses.    She made this

adjustment in accordance with respondent’s local guideline

amounts and noted that petitioners had not documented any reason

for deviating from these guidelines.    Finally, Cochran allowed

$2,100 (instead of $4,000) for monthly tax expenses.    She arrived

at this figure by calculating petitioners’ monthly income and

determining their approximate monthly tax liability.    She noted

that petitioners resided in Washington, which does not have a

State income tax.   In sum, Cochran concluded that petitioners had

allowable monthly expenses of $5,675.

     Cochran determined that petitioners’ net realizable equity

in their assets was either $311,200 or $306,013, see supra

note 7, and that petitioners had a monthly disposable income of

$6,265 ($11,940 in monthly income less $5,675 of monthly

allowable expenses).   Cochran also determined that petitioners

could pay $300,720 from their future income.9   In sum, Cochran


     9
       Cochran arrived at $300,720 by multiplying petitioners’
monthly disposable income of $6,265 by a factor of 48. Cochran
used a 48-month factor because petitioners were offering to
compromise their tax liability by paying cash. See Internal
                                                   (continued...)
                               - 8 -

concluded, petitioners’ net realizable equity in assets and

future income equaled $611,920 or alternatively $606,734.

     On May 12, 2005, Appeals issued petitioners a notice of

determination sustaining the proposed levy.   The notice concludes

that petitioners’ $90,258 offer-in-compromise is not an

appropriate collection alternative to the proposed levy.    The

notice, citing Internal Revenue Manual (IRM) sections 5.8.11.2.1

and 5.8.11.2.2, states that petitioners’ offer does not meet the

Commissioner’s guidelines for consideration as an offer-in-

compromise to promote effective tax administration on the basis

of economic hardship or equity and public policy.   Cochran noted

that since petitioners’ representative had not specified the

basis on which they were making their effective tax

administration offer, she considered it under both economic

hardship and equity and public policy grounds.

     As to petitioners’ offer-in-compromise to promote effective

tax administration due to economic hardship, the notice states

that “the taxpayers have the ability to meet all their necessary

living expenses and to pay all amounts owed from either their

equity in assets or their income stream and still have equity and

income”.   As to petitioners’ offer-in-compromise to promote

effective tax administration based on equity and public policy,



     9
      (...continued)
Revenue Manual (IRM) sec. 5.8.5.5.
                                 - 9 -

the notice states:   “the taxpayers’ Effective Tax Administration

offer proposal fails to meet the criteria for such consideration

under Internal Revenue Manual 5.8.11.2.2 * * * [and], therefore,

cannot be considered further.”    The notice further states as to

Cochran’s balancing of efficient collection with the legitimate

concerns of taxpayers that

     The taxpayers’ concerns about the proposed collection
     action generally fall into two areas: (1) pending
     litigation (the interest abatement case) and (2) a
     viable collection alternative in the form of their
     $90,258 offer in compromise.

     The Settlement Officer has balanced the taxpayers’
     first area of concern by withholding further collection
     activity regarding [sic] such time as the pending
     interest abatement case regarding 1989 (for the accrued
     interest still unpaid) or the pending TEFRA penalty
     case regarding 1989 (for the accrued failure to pay
     penalty) is decided.

     With respect to the taxpayers’ second area of concern, the
     Settlement Officer has evaluated the taxpayers’ $90,258
     offer to compromise the underlying liabilities as a
     collection alternative to the proposed levy action. Based
     on that evaluation, the taxpayers’ offer of $90,258 could
     not be recommended for acceptance, and therefore cannot be
     considered as a collection alternative.

The notice states that petitioners have neither offered an

argument nor cited any authority to permit Appeals to deviate

from the provisions of the IRM.

     As to petitioners’ claim at the hearing for an interest

abatement, Cochran ascertained that petitioners had filed the

case in this Court seeking an abatement of interest under section

6404(e) for 1989.    Cochran stated in the notice of determination
                              - 10 -

that she had decided to stay collection activity relating to

interest amounts while petitioners’ interest abatement case for

1989 was pending in this Court.

                              OPINION

     This case is another in a long list of cases brought in this

Court involving respondent’s proposal to levy on the assets of a

partner in a Hoyt partnership to collect Federal income taxes

attributable to the partner’s participation in the partnership.

Petitioners argue that Appeals was required to let them pay

$90,258 to compromise their estimated $260,143 Federal income tax

liability for 1987 through 1998.   Where an underlying tax

liability is not at issue in a case invoking our jurisdiction

under section 6330(d), we review the determination of Appeals for

abuse of discretion.   See Sego v. Commissioner, 114 T.C. 604, 610

(2000); see also Clayton v. Commissioner, T.C. Memo. 2006-188;

Barnes v. Commissioner, T.C. Memo. 2006-150.   We reject the

determination of Appeals only if the determination was arbitrary,

capricious, or without sound basis in fact or law.   See Cox v.

Commissioner, 126 T.C. 237, 255 (2006); Murphy v. Commissioner,

125 T.C. 301, 308, 320 (2005), affd. 469 F.3d 27 (1st Cir. 2006).

     Where, as here, we decide the propriety of Appeals’s

rejection of an offer-in-compromise, we review the reasoning

underlying that rejection to decide whether the rejection was

arbitrary, capricious, or without sound basis in fact or law.
                                - 11 -

We do not substitute our judgment for that of Appeals, and we do

not decide independently the amount that we believe would be an

acceptable offer-in-compromise.    See Murphy v. Commissioner,

supra at 320; see also Clayton v. Commissioner, supra; Barnes v.

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

Fargo v. Commissioner, T.C. Memo. 2004-13, affd. 447 F.3d 706

(9th Cir. 2006).   Nor do we usually consider arguments, issues,

or other matters raised for the first time at trial, but we limit

ourselves to matter brought to the attention of Appeals.

See Murphy v. Commissioner, supra at 308; Magana v. Commissioner,

118 T.C. 488, 493 (2002).   “[E]vidence that * * * [a taxpayer]

might have presented at the section 6330 hearing (but chose not

to) is not admissible in a trial conducted pursuant to section

6330(d)(1) because it is not relevant to the question of whether

the Appeals officer abused her discretion.”    Murphy v.

Commissioner, supra at 315.10


     10
       In Murphy v. Commissioner, 125 T.C. 301 (2005), affd.
469 F.3d 27 (1st Cir. 2006), the Court declined to include in the
record external evidence relating to facts not presented to
Appeals. The Court distinguished Robinette v. Commissioner,
123 T.C. 85 (2004), revd. 439 F.3d 455 (8th Cir. 2006), and held
that the external evidence was inadmissible in that it was not
relevant to the issue of whether Appeals abused its discretion.
In a memorandum that petitioners filed with the Court on April
13, 2006, pursuant to an order of the Court directing petitioners
to explain the relevancy of any external evidence that they
desired to include in the record of this case, petitioners made
no claim that they had offered any of the external evidence to
Cochran. Instead, as we read petitioners’ memorandum in the
light of the record as a whole, petitioners wanted to include the
                                                   (continued...)
                               - 12 -

     Section 6330(c)(2)(A)(iii) allows a taxpayer to offer to

compromise a Federal tax debt as a collection alternative to a

proposed levy.    Section 7122(c) authorizes the Commissioner to

prescribe guidelines to determine when a taxpayer’s offer-in-

compromise should be accepted.    The applicable regulations,

section 301.7122-1(b), Proced. & Admin. Regs., list three grounds

on which the Commissioner may accept an offer-in-compromise of a

Federal tax debt.    These grounds are “Doubt as to liability”,

“Doubt as to collectibility”, and to “Promote effective tax

administration”.    Sec. 301.7122-1(b)(1), (2), and (3), Proced. &

Admin. Regs.    Petitioners reported on their Form 433-A that they

had assets worth $311,994.    Cochran determined that petitioners’

reasonable collection potential (taking into account their assets

as well as future income) was either $611,920 or $606,734.

Petitioners can afford to pay their estimated $260,143 tax

liability in full and do not argue that the liability is in

doubt.    They seek to qualify for an offer-in-compromise to

promote effective tax administration.    See sec. 301.7122-1(b)(3),

Proced. & Admin. Regs.; cf. Fargo v. Commissioner, 447 F.3d 706



     10
      (...continued)
external evidence in the record of this case to prove that
Cochran abused her discretion by not considering facts and
documents that they had consciously decided not to give to her.
Consistent with Murphy v. Commissioner, supra, we sustained
respondent’s relevancy objections to the external evidence.
Accord Clayton v. Commissioner, T.C. Memo. 2006-188; Barnes v.
Commissioner, T.C. Memo. 2006-150.
                             - 13 -

(9th Cir. 2006) (taxpayers made an offer-in-compromise to promote

effective tax administration where they had sufficient assets to

pay their tax liability in full).

     Petitioners argue that respondent was required to compromise

their tax liability to promote effective tax administration.    The

Commissioner may compromise a tax liability to promote effective

tax administration when collection of the full liability will

create economic hardship and the compromise would not undermine

compliance with the tax laws by taxpayers in general.   See sec.

301.7122-1(b)(3)(i), (iii), Proced. & Admin. Regs.   If a taxpayer

does not qualify for effective tax administration compromise on

grounds of economic hardship, the regulations also allow the

Commissioner to compromise a tax liability to promote effective

tax administration when the taxpayer identifies compelling

considerations of public policy or equity.   See sec. 301.7122-

1(b)(3)(ii), Proced. & Admin. Regs.

     Cochran considered all of the evidence submitted to her by

petitioners and applied the guidelines for evaluating an

offer-in-compromise to promote effective tax administration.

Although petitioners did not specifically state on which basis

they were submitting their effective tax administration offer-in-

compromise, Cochran considered it under both economic hardship

and public policy and equity grounds.   Cochran determined that

petitioners’ offer was unacceptable because they had not
                               - 14 -

demonstrated that they would suffer economic hardship and public

policy and equity reasons did not weigh in favor of accepting

their offer.    Cochran’s determination to reject petitioners’

offer-in-compromise was not arbitrary, capricious, or without a

sound basis in fact or law, and it was not abusive or unfair to

petitioners.    Cochran’s determination was based on a reasonable

application of the guidelines, which we decline to second-guess.

See Speltz v. Commissioner, 124 T.C. 165 (2005), affd. 454 F.3d

782 (8th Cir. 2006); Clayton v. Commissioner, T.C. Memo.

2006-188; Barnes v. Commissioner, T.C. Memo. 2006-150.

     Petitioners make six arguments in advocating a contrary

result.   First, petitioners argue that the Court lacks

jurisdiction to review the rejection of their offer-in-

compromise.    Petitioners allege that Hoyt had a conflict of

interest that prevented him from extending the periods of

limitation for the partnerships in which petitioners were

partners.   Petitioners conclude that any consents signed by Hoyt

to extend the periods of limitation were invalid, which in turn

means that the Court lacks jurisdiction because the applicable

periods of limitation have otherwise expired.

     Petitioners’ challenge to this Court’s jurisdiction is

groundless, frivolous, and unavailing.    It is well settled that

the expiration of the period of limitation is an affirmative

defense and not a factor of this Court’s jurisdiction.    See Day
                              - 15 -

v. McDonough, 547 U.S.     , 126 S. Ct. 1675, 1681 (2006) (“A

statute of limitations defense * * * is not ‘jurisdictional’”);

Kontrick v. Ryan, 540 U.S. 443, 458 (2004) (“Time bars * * *

generally must be raised in an answer or responsive pleading.”);

see also Davenport Recycling Associates v. Commissioner, 220 F.3d

1255, 1259 (11th Cir. 2000), affg. T.C. Memo. 1998-347; Chimblo

v. Commissioner, 177 F.3d 119, 125 (2d Cir. 1999), affg. T.C.

Memo. 1997-535; Columbia Bldg., Ltd. v. Commissioner, 98 T.C.

607, 611 (1992); Robinson v. Commissioner, 57 T.C. 735, 737

(1972).   Where, as here, the claim of a time bar relates to items

of a partnership, the claim must be made in the partnership

proceeding and may not be considered at a proceeding involving

the personal income tax liability of one or more of the partners

of the partnership.   See Davenport Recycling Associates v.

Commissioner, supra at 1259-1260; Chimblo v. Commissioner, supra

at 125; Kaplan v. United States, 133 F.3d 469, 473 (7th Cir.

1998).

     Second, petitioners argue that Cochran’s rejection of their

offer-in-compromise conflicts with the congressional committee

reports underlying the enactment of section 7122.   According to

petitioners, their case is a “longstanding” case, and those

reports require that respondent resolve such cases by forgiving

interest and penalties that otherwise apply.   We disagree with

petitioners’ reading and application of the legislative history
                               - 16 -

underlying section 7122.    Petitioners’ argument on this point is

essentially the same argument that was considered and rejected by

the Court of Appeals for the Ninth Circuit in Fargo v.

Commissioner, 447 F.3d at 711-712.      We do likewise here for the

same reasons stated in that opinion.     We add that petitioners’

counsel participated in the appeal in Fargo as counsel for the

amici.   While petitioners in their brief suggest that the Court

of Appeals for the Ninth Circuit knowingly wrote its opinion in

Fargo in such a way as to distinguish that case from the cases of

counsel’s similarly situated clients (e.g., petitioners), and

otherwise to allow those clients to receive an abatement of their

liability attributable to partnerships such as those here, we do

not read the opinion of the Court of Appeals for the Ninth

Circuit in Fargo to support that conclusion.

     Third, petitioners argue that Cochran inadequately

considered their unique facts and circumstances.     We disagree.

Cochran reviewed and considered all information given to her by

petitioners.   On the basis of the facts and circumstances of

petitioners’ case as they were presented to her, Cochran

determined that petitioners’ offer did not meet the applicable

guidelines for acceptance of an offer-in-compromise to promote

effective tax administration based on economic hardship or public

policy or equity grounds.   We find no abuse of discretion in that

determination.   Nor do we find that Cochran inadequately
                                - 17 -

considered the information actually given to her by petitioners.

With the exception of expenses that exceeded respondent’s

guidelines and excessive claimed tax expenses, Cochran allowed

the full amount of petitioners’ expenses.     Moreover, Cochran

allowed the full $400 that petitioners claimed in medical

expenses even though they provided no documentation of any such

expenses.   Finally, Cochran allowed petitioners more than a month

after their collection due process hearing to submit additional

documents to support their position.     We find that Cochran gave

thorough consideration to all of petitioners’ claims.

     Fourth, petitioners argue that public policy demands that

their offer-in-compromise be accepted because they were victims

of fraud.   We disagree.   While the regulations do not set forth a

specific standard for evaluating an offer-in-compromise based on

claims of public policy or equity, the regulations contain two

illustrative examples.     See sec. 301.7122-1(c)(3)(iv), Examples

(1) and (2), Proced. & Admin. Regs.      The first example describes

a taxpayer who is seriously ill and unable to file income tax

returns for several years.    The second example describes a

taxpayer who received erroneous advice from the Commissioner as

to the tax effect of the taxpayer’s actions.     Neither example

bears any resemblance to this case.      See Speltz v. Commissioner,

454 F.3d at 786.   Unlike the exceptional circumstances

exemplified in the regulations, petitioners’ situation is neither
                              - 18 -

unique nor exceptional in that petitioners’ situation mirrors

that of numerous taxpayers who claimed tax shelter deductions in

the 1980s and 1990s, obtained the tax advantages, promptly forgot

about their “investment”, and now realize that paying their taxes

may require a change of lifestyle.11   See Clayton v.

Commissioner, T.C. Memo. 2006-188; Barnes v. Commissioner, T.C.

Memo. 2006-150.

     We also believe that compromising petitioners’ case on

grounds of public policy or equity would not promote effective

tax administration.   While petitioners portray themselves as

victims of Hoyt’s alleged fraud and respondent’s alleged delay in

dealing with Hoyt, they take no responsibility for their tax

predicament.   We cannot agree that acceptance by respondent of

petitioners’ $90,258 offer to satisfy their estimated $260,143

tax liability would enhance voluntary compliance by other

taxpayers.   A compromise on that basis would place the Government


     11
       Of course, the examples in the regulations are not meant
to be exhaustive, and petitioners’ situation is not identical to
that of the taxpayers in Fargo v. Commissioner, 447 F.3d 706, 714
(9th Cir. 2006), affg. T.C. Memo. 2004-13, regarding whom the
Court of Appeals for the Ninth Circuit noted that “no evidence
was presented to suggest that Taxpayers were the subject of fraud
or deception”. Such considerations, however, have not kept this
Court from finding investors in Hoyt’s shelters to be culpable of
negligence, see, e.g., Keller v. Commissioner, T.C. Memo. 2006-
131, nor prevented the Courts of Appeals for the Sixth, Ninth,
and Tenth Circuits from affirming our decisions to that effect in
Hansen v. Commissioner, 471 F.3d 1021 (9th Cir. 2006), affg. T.C.
Memo. 2004-269; Mortensen v. Commissioner, 440 F.3d 375 (6th Cir.
2006), affg. T.C. Memo. 2004-279; and Van Scoten v. Commissioner,
439 F.3d 1243 (10th Cir. 2006), affg. T.C. Memo. 2004-275.
                               - 19 -

in the unenviable role of an insurer against poor business

decisions by taxpayers, reducing the incentive for taxpayers to

investigate thoroughly the consequences of transactions into

which they enter.   It would be particularly inappropriate for the

Government to play that role here, where the transaction at issue

involves a tax shelter.   Reducing the risks of participating in

tax shelters would encourage more taxpayers to run those risks,

thus undermining rather than enhancing compliance with the tax

laws.12   See Clayton v. Commissioner, supra; Barnes v.

Commissioner, supra.

     Fifth, petitioners argue that Cochran failed to balance

efficient collection with the legitimate concern that collection

be no more intrusive than necessary.    We disagree.   Cochran

thoroughly considered this balancing issue on the basis of the

information and proposed collection alternative given to her by

petitioners.   She concluded that “the proposed levy action

regarding the taxpayers represents the only efficient means for


     12
       Nor does the fact that petitioners’ case may be
“longstanding” overcome the detrimental impact on voluntary
compliance that could result from respondent’s accepting
petitioners’ offer-in-compromise. An example in IRM sec.
5.8.11.2.2 implicitly addresses the “longstanding” issue. There,
the taxpayer invested in a tax shelter in 1983, thereby incurring
tax liabilities for 1981 through 1983. He failed to accept a
settlement offer by respondent that would have eliminated a
substantial portion of his interest and penalties. Although the
example, which is similar to petitioners’ case in several
respects, would qualify as a “longstanding” case by petitioners’
standards, the offer was not acceptable because acceptance of it
would undermine compliance with the tax laws.
                              - 20 -

collection of the liabilities at issue in this case”.     While

petitioners assert that Cochran did not consider all of the facts

and circumstances of this case, “including whether the

circumstances of a particular case warrant acceptance of an

amount that might not otherwise be acceptable under the

Secretary’s policies and procedures”, sec. 301.7122-1(c)(1),

Proced. & Admin. Regs., we find to the contrary.   Cochran

thoroughly considered petitioners’ arguments for accepting their

offer-in-compromise, and she rejected the offer only after

concluding that petitioners could pay much more of their tax

liability than the $90,258 they offered.   Cf. IRM sec.

5.8.11.2.1(11) (“When hardship criteria are identified but the

taxpayer does not offer an acceptable amount, the offer should

not be recommended for acceptance”).

     Sixth, petitioners argue that Cochran inappropriately failed

to consider whether they qualified for an abatement of interest

for reasons other than those described in section 6404(e).     We

disagree.   We note that in the notice of determination, Cochran

decided to stay collection of interest while petitioners’

interest abatement case was pending in this Court.   Moreover, we

find nothing to suggest that Cochran believed that petitioners’

sole remedy for interest abatement in this case rested on the

rules of section 6404(e).   In fact, regardless of the rules of

section 6404(e), Cochran obviously would have abated interest in
                              - 21 -

this case had she agreed to let petitioners compromise their

estimated $260,143 liability by paying less than the amount of

interest included within that liability.

     We hold that Appeals did not abuse its discretion in

rejecting petitioners’ $90,258 offer-in-compromise.    In so

holding, we express no opinion as to the amount of any compromise

that petitioners could or should be required to pay, or that

respondent is required to accept.   The only issue before us is

whether Appeals abused its discretion in refusing to accept

petitioners' specific offer-in-compromise in the amount of

$90,258.   See Speltz v. Commissioner, 124 T.C. at 179-180.    We

have considered all arguments made by petitioners for a contrary

holding and have found those arguments not discussed herein to be

irrelevant and/or without merit.


                                           An appropriate order will

                                    be issued.
