                        T.C. Memo. 2006-216



                      UNITED STATES TAX COURT



           BARRY AND SHERRY BLONDHEIM, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 15549-05L.              Filed October 10, 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 $298,003

of Federal income taxes owed by petitioners for 1981 through
                               - 2 -

1986.1   Petitioners argue that Appeals was required to accept

their offer of $83,213 to compromise $298,003 of Federal income

tax liability that respondent’s records reported were due from

them for 1981 through 1986.   We decide whether Appeals abused its

discretion in rejecting that offer.2   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 1984, petitioners’ Federal income tax returns

claimed losses and credits from their involvement in a

partnership organized and operated by Walter J. Hoyt, III (Hoyt).

The partnership was called Shorthorn Genetic Engineering 1984-3.

Hoyt was the partnership’s general partner and tax matters

partner, and the partnership was subject to the unified audit and

litigation procedures of the Tax Equity and Fiscal Responsibility


     1
       Unless otherwise indicated, section references are to the
applicable versions of the Internal Revenue Code. Dollar amounts
are rounded.
     2
       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.
                               - 3 -

Act of 1982, Pub. L. 97-248, sec. 402(a), 96 Stat. 648.   Hoyt was

convicted on criminal charges relating to the promotion of this

and other partnerships.

     Petitioners’ claim to the losses and credits resulted in the

underreporting of their 1981 through 1986 taxable income.   On

December 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.

     On January 14, 2004, petitioners asked Appeals for the

referenced hearing.   On June 8, 2005, Linda Cochran (Cochran), a

settlement officer in Appeals, held the hearing with petitioners’

counsel.   Cochran and petitioners’ counsel discussed petitioners’

intent to offer to compromise their 1981 through 1986 Federal

income tax 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.

     On June 8, 2005, petitioners tendered to Cochran on Form

656, Offer in Compromise, a written offer to pay $83,213 to
                                - 4 -

compromise their reported $298,003 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

petitioners owned assets with a total current value of

$1,388,757, inclusive of the following:3

                      Assets                  Current value

           Cash in accounts                     $46,441
           Cash value of life insurance          12,707
           Pensions & IRA                       491,121
           Vehicles:
             2000 Cadillac Escalade                11,975
             1984 Subaru Brat                         138
                                                1
           Real estate (residence)                136,800
           Real estate (Oregon property)           96,693
           Real estate (other properties)        588,882
           Furniture/personal effects               4,000
                                              1,388,757
            1
            Petitioners reported on Form 433-A that this
     figure represents 80 percent of their home’s appraised
     value.


The Form 433-A also reported that petitioners owed $9,131 on the

Cadillac Escalade, $103,482 on their residence, $166,041 on their

various other properties, and had taken a $10,000 loan against



     3
       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”.
                                 - 5 -

one of their pension plans.     The Form 433-A reported the

following monthly items of income and expense:

                       Items of income            Amount

              Husband’s wages                     $3,700
              Wife’s wages                         2,500
              Rental income                        4,434
                                                  10,634

                       Items of expense           Amount

              Food, clothing, and miscellaneous   $1,280
              Housing and utilities                1,953
              Transportation                         596
              Medical expenses                       669
              Taxes                                2,250
                                                   6,748

     Cochran determined that petitioners’ net realizable equity

in their cash was the $46,441 reported in their bank accounts and

that petitioners’ net realizable equity in their life insurance,

Subaru Brat, and Oregon property was the same as the reported

values.4   Cochran noted the various encumbrances reported by

petitioners, and in the case of the furniture/personal effects,

allowed a $7,200 exemption for their entire value under section

6334(a)(2).5    She summarized petitioners’ assets and liabilities

as follows:




     4
       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.”
     5
       Whereas sec. 6334(a)(2) limits this exemption to $6,250,
Cochran does not explain in the notice of determination why she
allowed petitioners the greater amount.
                                  - 6 -
                                Fair      Quick                    Net
                                market    sale    Encumbrance    realizable
              Assets            value     value   or exemption     equity

  Cash                         $46,441     --          --        $46,441
  Cash value of life insurance  12,707     --          --         12,707
  Retirement accounts          491,121     --      $10,000       481,121
  Vehicles:
                                   1
    1984 Subaru Brat                134    $107        --            107
    2000 Cadillac Escalade      11,975    9,580      9,131           449
  Real estate (residence)      171,000      –-     103,482        67,518
  Real estate (Oregon property) 96,693      –-         --         96,693
  Furniture/personal effects     4,000      –-       7,200             0
                               834,071    9,687    129,813       705,036
          1
            Petitioners had listed the value of this vehicle
     as $138.

     In her comments following this summary, Cochran stated that

she had not taken into account the value of petitioners’ S

corporation, Bear Mart Auto Sales, Inc.6          She also did not

include petitioners’ real estate holdings, reported as having a

current value of $588,882.

     The only adjustment that Cochran made to petitioners’

claimed expenses was that she allowed $1,093 for housing instead

of the $1,953 that petitioners had claimed.          Cochran stated that

she made this adjustment in accordance with current local

guidelines and that she considered petitioners’ particular

circumstances, but they did not warrant allowing the higher

figure submitted by petitioners.

     Cochran determined that petitioners’ net realizable equity

in their assets was $705,036 and that they had a monthly


     6
       Petitioners had completed and submitted to Cochran a Form
433-B, Collection Information Statement for Businesses, which
listed the assets and liabilities of their S corporation.
                               - 7 -

disposable income of $4,746.   She calculated that petitioners

could pay $227,808 from their future income.7    In sum, Cochran

concluded, petitioners’ net realizable equity in assets and

future income equaled $932,844.

     On July 22, 2005, Appeals issued petitioners a notice of

determination sustaining the proposed levy.     The notice concludes

that petitioners’ $83,213 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 had not specified the basis on which they

were making their 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:

     Considered under economic hardship, the taxpayers have
     the ability to pay all amounts owed from either their
     assets or their income stream and still have assets and
     an income stream remaining worth over $630,000. The
     amount being offered by the taxpayers represents 8% of
     the taxpayers’ Reasonable Collection Potential (RCP).




     7
       Cochran arrived at $227,808 by multiplying petitioners’
monthly disposable income of $4,746 by a factor of 48.
                                - 8 -

       The taxpayers’ circumstances were considered, but the
       taxpayers would have substantial assets and income
       stream remaining ($630,000+) to cover their living and
       medical expenses. As such, the taxpayers failed to
       document economic hardship in accordance with Internal
       Revenue Manual 5.8.11.2.1.

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

administration based on equity and public policy, the notice

states: “When considered under public policy or equity grounds,

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.”    The notice further states as to Cochran’s balancing

of efficient collection with the legitimate concerns of taxpayers

that

       the Settlement Officer has evaluated the taxpayers’
       $83,213 offer to compromise the underlying liabilities
       as a collection alternative to the proposed levy
       action. Based on that evaluation, the taxpayers’ offer
       of $83,213 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 liabilities 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.
                               - 9 -

                              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

$83,213 to compromise a $298,003 Federal income tax liability for

1981 through 1986.   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).

     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,
                               - 10 -

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 315.8



     8
       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 Apr. 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. Accord Clayton v. Commissioner, T.C. Memo.
2006-188; Barnes v. Commissioner, T.C. Memo. 2006-150.
                               - 11 -

     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 $1,388,757.    Cochran determined that

petitioners’ reasonable collection potential (taking into account

their assets as well as future income) was $932,844.      Petitioners

can afford to pay their $298,003 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 (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
                              - 12 -

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

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
                              - 13 -

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, supra; Barnes v.

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

     Petitioners make seven 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
                              - 14 -

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,
                              - 15 -

supra, 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 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

considered the information actually given to her by petitioners.

Cochran allowed the full amount of medical expenses that

petitioners submitted on their Form 433-A.    While petitioners

claimed during the administrative hearing that they would incur

increased medical expenses in the future, they provided no
                               - 16 -

substantiation of these costs to Cochran.   Because petitioners

did not submit any documentation of future medical expenses, we

find that Cochran did not abuse her discretion in not allowing

future medical costs that are entirely speculative.   See Fargo v.

Commissioner, 447 F.3d at 710 (it is not an abuse of discretion

for Appeals to disregard claimed medical expenses that are

speculative or not related to the taxpayer); see also Clayton v.

Commissioner, supra; Barnes v. Commissioner, supra.

     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 $83,213 of 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

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
                              - 17 -

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, 454 F.3d at 786.

     Nor have petitioners articulated with any specificity the

purported economic hardship they will suffer if they are not

allowed to compromise their liability for $83,213.   Petitioners

have given us 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”.9   Sec. 301.7122-1(c)(3)(i)(A), Proced. & Admin. Regs.

     We also are mindful that any decision by Cochran to accept

petitioners’ offer-in-compromise to promote effective tax

administration 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


     9
       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. Petitioners
here, like the taxpayers in Fargo, have substantial assets and
future income potential and can afford to pay their tax liability
in full.
                                 - 18 -

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

that petitioners would suffer economic hardship, a finding that

we emphasize we do not 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 taxpayers in

general.    The prospect that acceptance of an offer will undermine

compliance with the tax laws militates against its acceptance.

See Rev. Proc. 2003-71, 2003-2 C.B. 517; IRM sec. 5.8.11.2.2; see

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

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

     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.       See Speltz v. Commissioner,
                              - 19 -

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

exemplified in the regulations, petitioners’ situation is neither

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.10   See Clayton v.

Commissioner, supra; Barnes v. Commissioner, supra.

     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’ $83,213 offer to satisfy their $298,003 tax

liability would enhance voluntary compliance by other taxpayers.



     10
       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 at 714,
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, 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.
                               - 20 -

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 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.11

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

supra.

     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 balancing issue on the basis of the

information and proposed collection alternative given to her by

petitioners.   She concluded that “the proposed levy action


     11
       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.
                               - 21 -

regarding the taxpayers represents the only efficient means for

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 $83,213 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”).

     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.   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 this case had she agreed to let
                              - 22 -

petitioners compromise their $298,003 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’ $83,213 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

$83,213.   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.
