                        T.C. Memo. 2006-150



                      UNITED STATES TAX COURT



            ROY AND ANTONETTE BARNES, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 10788-05L.              Filed July 24, 2006.



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

Jennifer A. Gellner, for petitioners.

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




             MEMORANDUM FINDINGS OF FACT AND OPINION


     LARO, Judge:   Petitioners petitioned the Court under section

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

Appeals (Appeals) sustaining a proposed levy relating to $342,012

of Federal income taxes (inclusive of interest) owed by
                               - 2 -

petitioners for 1981 through 1986.1    Petitioners argue that

Appeals was required to accept their offer of $32,000 to

compromise what they estimate is their approximately $400,000

Federal income tax liability (inclusive of interest) for 1981

through 1998.2   We decide whether Appeals abused its discretion

in rejecting that offer.3   We hold it did not.

                         FINDINGS OF FACT4

     The parties filed with the Court stipulations of fact and

accompanying exhibits.   The stipulated facts are found




     1
       Unless otherwise indicated, section references are to the
applicable versions of the Internal Revenue Code. Dollar amounts
are rounded.
     2
       While the proposed levy related only to 1981 through 1986,
petitioners offered to compromise their liability for 1987
through 1998 as well.
     3
       Petitioners also dispute respondent’s determination that
they are liable for increased interest under sec. 6621(c). This
interest relates to deficiencies attributable to “computational
adjustments”, see secs. 6230(a)(1) and 6231(a)(6), made following
the Court’s decision in Shorthorn Genetic Engg. 1982-2, Ltd. v.
Commissioner, T.C. Memo. 1996-515. As to this dispute, the
parties have agreed to be bound by a final decision in Ertz v.
Commissioner, docket No. 20336-04L, which involves a similar
issue.
     4
       Following a trial of this case, the Court ordered each
party to file an opening brief of no more than 25 pages.
Petitioners filed a 25-page opening brief that attempts to
circumvent the Court’s order by incorporating (1) lengthy
arguments made in their 38-page pretrial memorandum and (2) 90
paragraphs of stipulated facts. To the extent that an argument
or proposed finding of fact is not specifically set forth in
petitioners’ opening brief, we decline to consider it.
                                - 3 -

accordingly.    When the petition was filed, petitioners resided in

Pasco, Washington.

     Beginning in 1984, petitioners’ Federal income tax returns

claimed losses and credits from their involvement in various

partnerships organized and operated by Walter J. Hoyt, III

(Hoyt).    The partnerships were Shorthorn Genetic Engineering

1984-4, Timeshare Breeding Services 1989-1, Timeshare Breeding

Syndicate Joint Venture, Timeshare Breeding Service 1989-3 J.V.,

and Hoyt and Sons Trucking.    Hoyt was each partnership’s general

partner and tax matters partner, and the partnerships were all

subject to the unified audit and litigation procedures of the Tax

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

sec. 401, 96 Stat. 648.    Hoyt was convicted on criminal charges

relating to the promotion of these partnerships.

     Petitioners’ claim to the losses and credits resulted in the

underreporting of their 1981 through 1986 taxable income.     On

August 16, 2003, respondent mailed to petitioners a Letter 1058,

Final Notice of Intent to Levy and Notice of Your Right to a

Hearing.    The notice informed petitioners that respondent

proposed to levy on their property to collect Federal income

taxes that they owed for 1981 through 1986.    The notice advised

petitioners that they were entitled to a hearing with Appeals to

review the propriety of the proposed levy.
                                 - 4 -

     On September 5, 2003, 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 1981 through 1998 Federal income tax

liability due to doubt as to collectibility with special

circumstances and 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 had pending in this Court.     That case related to

the same years at issue here.    Petitioners claimed that the

proposed levy should be rejected because that case was pending.

     On February 15, 2005, petitioners tendered to Cochran on

Form 656, Offer in Compromise, a written offer to pay $32,000 to

compromise their approximately $400,000 liability.     Petitioners

supplemented their offer with a completed Form 433-A, Collection

Information Statement for Wage Earners and Self-Employed

Individuals, four letters totaling approximately 65 pages, and

volumes of documents.    The Form 433-A reported that petitioners
                              - 5 -

owned assets with a total current value of $144,322, inclusive of

the following:5

                    Assets                  Current value

          Cash                                    $3,528
          Investments                              3,438
          Cash value of life insurance            22,771
          Vehicles:
            1989 Pontiac LE                        225
            1997 Chevrolet Scottsdale              500
            1999 Buick LeSabre                   3,860
            2000 BMW motorcycle                  3,500
          Home                                  89,000
          Other real property                   17,500
                                               144,322

The Form 433-A also reported that petitioners had a single debt

of $7,236, all of which was attributable to the 1999 Buick

LeSabre, and the following monthly items of income and expense:

          Items of income                Amount

     Husband’s pension                   $3,572
     RAVA annuity payout                  1,029
     IDS life insurance annuity             106
                                          4,707

          Items of expense               Amount

     Food, clothing, and miscellaneous   $1,020
     Utilities                              657
     Transportation--Purchase               189
     Transportation--Operation              399
     Medical expenses                     1,087
     Taxes (Income)                         554
     Life insurance                         300
     Other expense                          500
                                          4,706


     5
       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 -

     Cochran determined that petitioners’ net realizable equity

in each of their reported assets was the same as its reported

value, except she reduced the reported value of each vehicle by

20 percent.6     Cochran summarized petitioners’ assets and

liabilities as follows:

                                 Fair      Quick                    Net
                                 market    sale                  realizable
               Assets            value     value   Encumbrance     equity

  Cash                           $3,528     --         --          3,528
  Investments                     3,438     --         --          3,438
  Cash value of life insurance   22,771     --         --         22,771
  Vehicles:
    1989 Pontiac LE                  225     180       --            180
    1997 Chevrolet Scottsdale        500     400       --            400
    1999 Buick LeSabre             3,860   3,080     7,236           -0-
    2000 BMW motorcycle            3,500   2,800       –-          2,800
  Home                            89,000     --        --         89,000
  Other real property             17,500     --        –-         17,500
                                 144,322   6,460     7,236       139,617

     As to the reported expenses, Cochran accepted all of those

expenses except for the $500 “other expense” which petitioners

failed to substantiate as to either its source or amount.7

Cochran determined that petitioners’ monthly excess income (i.e.,

monthly income less monthly expenses) was $501 ($4,707 - ($4,706

- $500)), that petitioners’ income potential for the next


     6
       Cochran noted that the reported values of petitioners’
home and other real property were ascertained from their assessed
values and not from appraisals or current market prices, which
could be higher. Cochran also 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
       Cochran allowed petitioners’ medical expenses in full,
although she considered the amount to be greater than average.
Cochran noted that petitioners’ 2003 Federal income tax return
claimed a deduction for $8,641 of medical expenses that they paid
during that year.
                               - 7 -

48 months was approximately $24,000 ($501 x 48 = $24,048),8 and

that petitioners’ reasonable collection potential was $163,617

(future income potential of $24,000 + net realizable equity of

$139,617).   As an alternate calculation, Cochran took into

account petitioners’ $500 other expense (so as to eliminate any

consideration of future income potential) and recomputed their

reasonable collection potential at their net realizable equity of

$139,617.9   Cochran performed the alternate calculation because

she believed that the “other expense” could represent an

otherwise allowable expense such as attorney’s fees, although not

reported as such.

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

determination sustaining the proposed levy.   The notice concludes

that petitioners’ $32,000 offer-in-compromise is not an

appropriate collection alternative to the proposed levy.    The

notice, quoting in part Internal Revenue Manual (IRM) section

5.8.11.2.2.3, states that petitioners’ offer does not meet the

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

compromise due to doubt as to collectibility with special

circumstances.   The notice, citing IRM sections 5.8.11.1.2 and



     8
       Cochran used a 48-month factor because petitioners were
offering to compromise their tax liability by paying cash. See
Internal Revenue Manual (IRM) sec. 5.8.5.5.
     9
       Cochran noted that the alternate calculations would be
$131,617 and $107,617 were she to take into account the $32,000
proposed offer.
                              - 8 -

5.8.11.2.5, states that petitioners’ offer also does not meet the

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

compromise to promote effective tax administration.

     As to petitioners’ offer-in-compromise due to doubt as to

collectibility, the notice states more specifically that

     the taxpayers [petitioners] have the ability to pay
     more than the offer amount from the equity in their
     assets while still meeting their necessary basic living
     expenses, in accordance with IRM 5.8.5.5.1. The
     taxpayers have an ability to pay substantially more
     than the amount being offered, as per the guidelines of
     Internal Revenue Manual 5.8.5.3.1. The taxpayers’
     circumstances have been documented and considered but
     are insufficient to permit acceptance of an offer
     amount that is, at best, less than 30% of the RCP
     [reasonable collection potential] ($32,000/$107,617).

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

administration, the notice states:

     Analysis of the taxpayers’ finances shows that the
     taxpayers’ equity in assets plus present and future
     income are less than the assessed amounts to be
     compromised. The taxpayers, therefore, fail to meet
     the requirements for consideration of an offer in
     compromise based on Effective Tax Administration, as
     per the guidelines of Internal Revenue Manual
     5.8.11.1(2).

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 within two areas: (1) pending
     litigation (the interest abatement case) and (2) a
     viable collection alternative in the form of their
     $32,000 offer in compromise.

     The Settlement Officer has balanced the taxpayers’
     first area of concern by confirming that the taxpayers’
     interest abatement case has been decided in Tax Court,
                               - 9 -

     with the decision being that the taxpayers have
     conceded the interest abatement issue for the years
     1981, 1982, 1983, 1984, 1985, and 1986.

     With respect to the taxpayers’ second area of concern,
     the Settlement Officer has evaluated the taxpayers’
     $32,000 offer to compromise the underlying liabilities
     as a collection alternative to the proposed levy
     action. Based on that evaluation, the taxpayers’ offer
     of $32,000 could not be recommended for acceptance, and
     therefore cannot be considered as a collection
     alternative.

     In all other respects, the proposed levy action
     regarding the taxpayers represents the only efficient
     means for collection of the liability at issue in this
     case.

The notice states that petitioners have neither offered an

argument nor cited any authority to permit Appeals to deviate

from the provisions of the IRM.

     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 upon section

6404(e) for the same years at issue here.   She also ascertained

that the parties to that case had on February 9, 2005, filed with

this Court a stipulated decision through which petitioners

conceded that they were not entitled to their requested interest

abatement.   Cochran determined that petitioners were not entitled

in this case to their claim for an abatement of interest, either

under section 6404(e) or as part of an offer-in-compromise.
                             - 10 -

                             OPINION

     This case is one 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

$32,000 to compromise what they estimate is their approximately

$400,000 Federal income tax liability for 1981 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).   We reject the

determination of Appeals only if the determination was arbitrary,

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

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

125 T.C. 301, 308, 320 (2005).

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

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

underlying that rejection to decide whether the rejection was

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

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

not decide independently the amount that we believe would be an

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

supra at 320; see also Fowler v. Commissioner, T.C. Memo.
                                - 11 -

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

     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


     10
       In Murphy v. Commissioner, 125 T.C. 301 (2005), the Court
declined to include in the record external evidence relating to
facts not presented to Appeals. The Court distinguished
Robinette v. Commissioner, 123 T.C. 85 (2004), revd. 439 F.3d 455
(8th Cir. 2006), and held that the external evidence was
inadmissible in that it was not relevant to the issue of whether
Appeals abused its discretion. In a memorandum that petitioners
filed with the Court on 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 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.
                               - 12 -

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 argue that respondent was required to compromise

their tax liability on the bases of the latter two grounds.    As

to the first of these grounds, the Commissioner may compromise a

tax liability due to doubt as to collectibility where the

taxpayer’s assets and income are less than the full amount of the

assessed liability.   See sec. 301.7122-1(b)(2), Proced. & Admin.

Regs.   In such a case, the Commissioner also may accept an offer-

in-compromise due to doubt as to collectibility with special

circumstances; i.e., the Commissioner may accept an offer of less

than the total reasonable collection potential of the case.    See

Rev. Proc. 2003-71, sec. 4.02, 2003-2 C.B. 517.   As to the second

ground, 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.
                                - 13 -

Regs.   If a taxpayer does not qualify for the just stated

effective tax administration compromise on grounds of economic

hardship, and does not qualify for an offer-in-compromise due to

doubt as to either liability or collectibility, 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.

     Petitioners made their offer-in-compromise due to doubt as

to collectibility with special circumstances and to promote

effective tax administration.    Petitioners reported on their Form

433-A that their reasonable collection potential was $140,462

(i.e., their assets’ total reported current value of $144,322 -

their $3,860 Buick LeSabre which was fully encumbered by debt).

Cochran determined petitioners’ reasonable collection potential

by way of alternative calculations.      Under each of those

calculations, petitioners cannot fully pay their approximately

$400,000 tax liability and thus do not qualify for an offer-in-

compromise to promote effective tax administration.      See sec.

301.7122-1(b)(3), Proced. & Admin. Regs.; cf. Fargo v.

Commissioner, 447 F.3d 706 (9th Cir. 2006) (taxpayers made an

offer-in-compromise to promote effective tax administration where

they had sufficient assets to pay their tax liability in full).

As to petitioners’ offer-in-compromise due to doubt as to
                              - 14 -

collectibility with special circumstances, the Commissioner

evaluates such an offer by applying the same factors (economic

hardship or considerations of public policy or equity) as in the

case of an offer-in-compromise to promote effective tax

administration.   See IRM sec. 5.8.11.2.1 and .2.   In accordance

with the Commissioner’s guidelines, an offer-in-compromise due to

doubt as to collectibility with special circumstances should not

be accepted even when economic hardship or considerations of

public policy or equity circumstances are identified, if the

taxpayer does not offer an acceptable amount.   See IRM sec.

5.8.11.2.1.11 and .12.

     Cochran considered all of the evidence submitted to her by

petitioners and applied the guidelines for evaluating an

offer-in-compromise due to doubt as to collectibility with

special circumstances or to promote effective tax administration.

As to the former, Cochran determined that petitioners’ offer was

unacceptable because they were able to pay more than the $32,000

that they offered to compromise their tax liability.     As to the

latter, Cochran determined that petitioners’ offer did not

qualify as an offer-in-compromise to promote effective tax

administration because petitioners were unable to pay their

liability in full.   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
                                 - 15 -

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.       F.3d       (8th Cir. 2006).

     Petitioners make eight arguments in advocating a contrary

result.   First, petitioners argue that the Court lacks

jurisdiction to review the rejection of their offer-in-

compromise.     Petitioners allege that Hoyt had a conflict of

interest that prevented him from extending the periods of

limitation for the partnerships in which petitioners were

partners.    Petitioners conclude that any consents signed by Hoyt

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

means that the Court lacks jurisdiction because the applicable

periods of limitation have otherwise expired.

     Petitioners’ challenge to this Court’s jurisdiction is

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

the expiration of the period of limitation is an affirmative

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

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

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

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

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

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

1255, 1259 (11th Cir. 2000), affg. T.C. Memo. 1998-347; Chimblo
                              - 16 -

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

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

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

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

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

proceeding and may not be considered at a proceeding involving

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

of the partnership.   See Davenport Recycling Associates v.

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

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

1998).

     Second, petitioners argue that Cochran’s rejection of their

offer-in-compromise conflicts with the congressional committee

reports underlying the enactment of section 7122.    According to

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

reports require that respondent resolve such cases by forgiving

interest and penalties that otherwise apply.    We disagree with

petitioners’ reading and application of the legislative history

underlying section 7122.   Petitioners’ argument on this point is

essentially the same argument that was considered and rejected by

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

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

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

counsel participated in the appeal in Fargo v. Commissioner, 447
                                - 17 -

F.3d 706 (9th Cir. 2006), as counsel for the amici.   While

petitioners in their brief suggest that the Court of Appeals for

the Ninth Circuit knowingly wrote its opinion in Fargo in such a

way as to distinguish that case from the cases of counsel’s

similarly situated clients (e.g., petitioners), and otherwise to

allow those clients to receive an abatement of their liability

attributable to partnerships such as those here, we do not read

the opinion of the Court of Appeals for the Ninth Circuit in

Fargo to support that conclusion.

     Third, petitioners argue that Cochran inadequately

considered their unique facts and circumstances.   We disagree.

Cochran reviewed and considered all information given to her by

petitioners.   On the basis of the facts and circumstances of

petitioners’ case as they had been presented to her, Cochran

determined that petitioners’ offer did not meet the applicable

guidelines for acceptance of an offer-in-compromise due to doubt

as to collectibility with special circumstances or to promote

effective tax administration.    We find no abuse of discretion in

that determination.

     Petitioners take exception to the fact that the notice of

determination does not state specifically that petitioners are in

their sixties and retired, speculating from this fact that

Cochran did not adequately take into account their special

circumstances.   Petitioners also assert that Cochran failed to
                               - 18 -

take their special circumstances into account because, they

assert, she did not reflect that they both have “significant

medical conditions” and that their medical expenses will increase

in later years.    Petitioners’ assertions and speculation are

without merit.    We do not believe that Appeals must specifically

list in the notice of determination every single fact that it

considered in arriving at the determination.    Nor do we find that

Cochran inadequately considered the information actually given to

her by petitioners.   In fact, Cochran computed petitioners’

future income potential by using the same income figures that

petitioners reported on their Form 433-A, and the reported items

of income were all types of retirement income that could

reasonably be expected to remain constant over the next 48

months.   Cochran’s calculations also reflected her generous

assessment that:   (1) In the 48-month period, petitioners would

pay $1,087 of medical expenses monthly, although she believed

that amount to be greater than average, (2) petitioners had

overstated the values of their vehicles and were entitled to a

20-percent reduction in those values, although petitioners had

reported their vehicles at their trade-in values, (3) petitioners

had properly valued their home and other real property at their

assessed values, although appraisals or current market value may

be higher, and (4) petitioners may be allowed to claim their $500

“other expense” as a monthly expense, although the nature of the
                                - 19 -

expense had not been identified.    Although petitioners believe

that Cochran’s calculation should have reflected increased

medical expenses in the 48-month period and thereafter, we do not

agree.   We are unable to find that petitioners ever told Cochran

with specificity that they would have to pay a greater amount of

unreimbursed medical expenses in the future.    Under the facts at

hand, we consider it reasonable for Cochran to have used

petitioners’ $1,087 monthly estimate, particularly when the

estimate, if annualized, exceeded petitioners’ prior year’s

actual medical expenses.    See Fargo v. Commissioner, 447 F.3d at

710 (it is not an abuse of discretion to disregard claimed

medical expenses that are speculative or not related to the

taxpayer).

     Fourth, petitioners argue that Cochran did not adequately

take into account the economic hardship they claim they will

suffer by having to pay more than $32,000 as to their tax

liability.   We disagree.   Section 301.6343-1(b)(4)(i), Proced. &

Admin. Regs., states that economic hardship occurs when a

taxpayer is “unable to pay his or her reasonable basic living

expenses.”   Section 301.7122-1(c)(3), Proced. & Admin. Regs.,

sets forth factors to consider in evaluating whether collection

of a tax liability would cause economic hardship, as well as some

illustrative examples.     One of the examples involves a taxpayer

who provides fulltime care to a dependent child with a serious
                                - 20 -

longterm illness.   A second example involves a taxpayer who would

lack adequate means to pay his basic living expenses were his

only asset to be liquidated.    A third example involves a disabled

taxpayer with a fixed income and a modest home specially equipped

to accommodate his disability, and who is unable to borrow

against his home because of his disability.    See sec.

301.7122-1(c)(3)(iii), Examples (1), (2), and (3), Proced. &

Admin. Regs.   None of these examples bears any resemblance to

this case but instead “describe more dire circumstances”.     Speltz

v. Commissioner,      F.3d at     .

     Nor have petitioners articulated with any specificity the

purported economic hardship they will suffer if they are not

allowed to compromise their liability for $32,000.    While

petitioners claim generally that the sale of their residence

would create an economic hardship in that they would be unable to

afford paying either rent or a mortgage, this claim is vague,

speculative, undocumented, and unavailing.11   Nor are we

persuaded by petitioners’ suggestion that their health is an

“economic hardship” by virtue of section 301.7122-1(c)(3)(i)(A),

Proced. & Admin. Regs.   In this regard, petitioners have given us



     11
       We note that our opinion here does not necessarily mean
that respondent may in fact levy on petitioners’ residence in
payment of their tax debt. Pursuant to sec. 6334(a)(13)(B) and
(e), a taxpayer’s principal residence is exempt from levy absent
the written approval of a U.S. District Court Judge or
Magistrate. See also sec. 301.6334-1(d), Proced. & Admin. Regs.
                                - 21 -

no reason to disagree with the essence of Cochran’s determination

that petitioners’ health does not render them “incapable of

earning a living”, nor have we reason to conclude that

petitioners’ “financial resources will be exhausted providing for

care and support during the course of the condition”.12    Id.

     We also are mindful that any decision by Cochran to accept

petitioners’ offer-in-compromise due to doubt of collectibility

with special circumstances must be viewed against the backdrop of

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

section requires that Cochran deny petitioners’ offer if her

acceptance of it would undermine voluntary compliance with tax

laws by taxpayers in general.    Thus, even if we were to assume

arguendo that petitioners would suffer economic hardship, a

finding that we emphasize we decline to make, we would not find

that Cochran’s rejection of petitioners’ offer was an abuse of

discretion because we conclude below (in our discussion of

petitioners’ fifth argument) that her acceptance of that offer

would have undermined voluntary compliance with tax laws by



     12
       We also note that the Court of Appeals for the Ninth
Circuit in Fargo v. Commissioner, 447 F.3d 706, 710 (9th Cir.
2006), affg. T.C. Memo. 2004-13, dismissed a similar claim of
economic hardship advanced by the taxpayers there. Although
those taxpayers had more assets than petitioners, the court
emphasized that a finding of economic hardship is within the
discretion of Appeals. Under the facts at hand, we find no abuse
of discretion in Cochran’s determination that petitioners would
suffer no economic hardship were they required to pay more than
their $32,000 offer.
                                - 22 -

taxpayers in general.    The prospect that acceptance of an offer

will undermine compliance with the tax laws militates against its

acceptance whether the offer is predicated on promotion of

effective tax administration or on doubt as to collectibility

with special circumstances.    See Rev. Proc. 2003-71, 2003-2 C.B.

517; see also IRM sec. 5.8.11.2.2.

     Fifth, petitioners argue that public policy demands that

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

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

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

claims of public policy or equity, the regulations contain two

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

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

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

returns for several years.    The second example describes a

taxpayer who received erroneous advice from the Commissioner as

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

bears any resemblance to this case.      Accord Speltz v.

Commissioner, supra.     Unlike the exceptional circumstances

exemplified in the regulations, petitioners’ situation is neither

unique nor exceptional in that their situation mirrors numerous

taxpayers who claimed tax shelter deductions in the 1980s and

1990s, obtained the tax advantages, promptly forgot about their
                              - 23 -

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

require a change of lifestyle.13

     We also agree with a claim by respondent 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’ $32,000 offer to satisfy their

approximately $400,000 tax liability would enhance voluntary

compliance by other taxpayers.     A compromise on that basis would

place the Government in the unenviable role of an insurer against

poor business decisions by taxpayers, reducing the incentive for

taxpayers to investigate thoroughly the consequences of

transactions into which they enter.    It would be particularly

inappropriate for the Government to play that role here, where

the transaction at issue is participation in a tax shelter.


     13
       Of course, the examples in the regulations are not meant
to be exhaustive, and petitioners have a more sympathetic case
than the taxpayers in Fargo v. Commissioner, supra 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 Hoyt’s shelters to be
culpable of negligence, most recently in Keller v. Commissioner,
T.C. Memo. 2006-131, nor prevented the Courts of Appeals for the
Sixth and Tenth Circuits from affirming our decisions to that
effect in Mortensen v. Commissioner, 440 F.3d 375 (6th Cir.
2006), affg. T.C. Memo. 2004-279, and Van Scoten v. Commissioner,
439 F.3d 1243 (10th Cir. 2006), affg. T.C. Memo. 2004-275.
                              - 24 -

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.14

     Sixth, petitioners argue that Cochran failed to balance

efficient collection with the legitimate concern that collection

be no more intrusive than necessary.   We disagree.   Cochran

thoroughly considered this 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

taxpayer represents the only efficient means for collection of

the liability at issue”.   While petitioners assert that Cochran

did not consider all of their facts and circumstances, “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


     14
       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.
5.8.11.2.3 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 accepting it
would undermine compliance with the tax laws.
                                - 25 -

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

concluding that petitioners could pay more of their tax liability

than the $32,000 they offered.    Cf. IRM sec. 5.8.11.2.1.11 (“When

[economic] hardship criteria are identified but the taxpayer does

not offer an acceptable amount, the offer should not be

recommended for acceptance”).

     Seventh, petitioners argue that Cochran inappropriately

failed to consider whether they qualified for an abatement of

interest for reasons other than those described in section

6404(e).   We disagree.   While Cochran declined to accept

petitioners’ request to reject the proposed levy because of their

interest abatement case, given that the interest abatement case

had been resolved, 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) and the stipulated

decision, Cochran obviously would have abated interest in this

case had she agreed to let petitioners compromise their

approximately $400,000 liability by paying less than the amount

of interest included within that liability.

     Eighth, petitioners argue that Cochran erred in not allowing

their counsel additional time to submit documents for Cochran’s

consideration and by not informing petitioners of the contents of

the notice of determination before it was issued.    We disagree on
                              - 26 -

both counts.   We do not believe that Cochran abused her

discretion by rejecting petitioners’ offer-in-compromise simply

because she may have established a due date for submission of

information.   As a matter of fact, petitioners’ counsel by their

own admission acknowledge that Cochran had regularly granted

counsel’s repeated requests for extensions made in part because

counsel was mired from their acceptance of many of these cases

involving other partners of the Hoyt partnerships.    Nor do we

believe that Cochran abused her discretion by rejecting

petitioners’ offer-in-compromise simply because she may not have

discussed with petitioners the contents of the notice of

determination (and given them a chance to dispute it) before

issuing the notice of determination to them.   Cf. Fargo v.

Commissioner, 447 F.3d at 712-713 (holding that Appeals has no

duty to negotiate with a taxpayer before rejecting the taxpayer’s

offer-in-compromise).   We also disagree with petitioners that

Cochran had an affirmative duty to attempt unilaterally to find

additional facts in support of their case as soon as she came to

the conclusion that their offer-in-compromise should be denied.

     We hold that Appeals did not abuse its discretion in

rejecting petitioners’ $32,000 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
                              - 27 -

whether Appeals abused its discretion in refusing to accept

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

$32,000.   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

without merit.


                                         An appropriate order will

                                    be issued.
