T .C . Memo . 2007-47

T .C . Memo . 2007-47

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UNITED STATES TAX COUR T

ROG ~R D . AND MARY M . CATLOW, Petitioners v .

COMIISSIONER OF INTERNAL REVENUE, Respondent

Docket No . 11319-05L .

Filed

March

Terri A . Merriam, Jennifer A . Gellner ,

1,

2007 .

Jaret R . Coles , an d

Asher B . Bearmlan , for petitioners . '

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

MEMORANDUM FINDINGS OF FACT AND OPINIO N

LARO,

Judge :

Petitioners petitioned the Court under sectio n

6330(d) to rev iew the determination of respondent's Office o f

' Pursuan,t to their requests, Jennifer A . Gellner and Asher

B . Bearman were allowed to withdraw on Nov . 14 and 17, 2006,

respectively .1

SERVED MAR 1 2001

- 2 Appeals (Appeals) sustaining a proposed levy relating to $541,620

of Federal income taxes (inclusive of additions to tax,

penalties, and interest) owed by petitioners for 1981 through

1991 .2 Petitioners argue that Appeals was required to accept

their offer of $35,000 to compromise what they estimate is their

approximately $575,000 Federal income tax liability for 1981

through 1998 .3 We decide whether Appeals abused its discretion

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

FINDINGS OF FAC T

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

Mattawa, Washington .

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 1981 through 1996 . However, petitioner s

also submitted to respondent a letter accompanying the Form 656

in which they stated that they wished to compromise their tax

liability for 1981 through 1998 . We read petitioners' offer to

include the years 1981 through 1998 .

' 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 Beginnin g in 1984, petitioners' Federal income tax returns

claimed losses and credits from their investment in a partnershi p

organized and perated by Walter J . Hoyt, III (Hoyt) . The

partnership war Shorthorn Genetic Engineering 1984-5 . Hoyt was

the partnership's general partner and tax matters partner, an d

the partnership was subject to the unified audit and litigatio n

procedures of

he Tax Equity and Fiscal Responsibility Act o f

1982, Pub . L .

p7 -248, sec . 402(a), 96 Stat . 648 . Hoyt was

convicted on criminal charges relating to the promotion of this

and other partnerships .

Petition e rs' claim to the losses and credits resulted in the

underreporting of their 1981 through 1991 taxable income . O n

May 9, 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 responden t

proposed to le y on their property to collect Federal income

taxes that they owed for 1981 through 1991 . The notice advised

petitioners that they were entitled to a hearing with Appeals to

review the propriety of the proposed levy .

On May 29,

2003, petitioners asked Appeals for the

referenced hearing . On March 25, 2004, Linda Cochran (Cochran),

a settlement fficer in Appeals, held the hearing with

petitioners' counsel . Cochran and petitioners' counsel discussed

two issues . he first issue concerned petitioners' intent to

- 4 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

had taken 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 mistakenly stated they had pending with

respondent .5 Petitioners stated that the interest abatement case

related to the same years at issue here and that the proposed

levy should be rejected because that case was pending . '

On May 7, 2004, petitioners tendered to Cochran on Form 656,

Offer in Compromise, a written offer to pay $35,000 to compromise

their estimated approximately $575,000 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 80 pages, and

volumes of documents . The Form 433-A reported that petitioner s

5 While petitioners stated that they had the interest

abatement case pending in this Court, they never petitioned this

Court with respect to the interest abatement issue .

' Petitioner Mary Catlow also requested relief under sec .

6015(b) and (f) . In that Mary Catlow later agreed that she was

not entitled to her requested relief, petitioners do not advance

that claim in this proceeding .

- 5 owned assets w th a total current value of $177,598, inclusive o f

the following :

Assets

Current

valu e

Cash in accounts $13,418

Reti ement accounts 105,440

Furnture/personal effects 3,000

Real

Estate

36,00 0

8, 95 0

Mobie home

Vehicles :

de minimis

1977 Ford Van

-01931 VW Pickup

46 0

1990 VW Jetta

10,330

2001 VW Passa t

177,59 8

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

of

$7,948,

whi h was attributable to the 2001 VW Passat, and th e

following mon t

lv items of income and expense :

Item

Husband 's

of

income

pension

Items

of

Amoun t

$4,551

expense

Amoun t

Food, clothing, and miscellaneous $1,271

Housing

682

Transportation

1,244

Medical expenses 1,103

Taxes

(Income)

446

Li

e

insurance

5

40 0

Ot er expenses

1

5,15 1

' Form 43 3-A states that each asset reported on the form

should be val ed at its "Current value", defined on the form as

"the amount y u could sell the asset for today" .

- 6 Cochran determined that petitioners' net realizable equity

in their cash was the $13,110 reported in their bank accounts'

and that petitioners' net realizable equity in their retirement

accounts and real estate was the same as the reported values .

Cochran reduced the reported value of the vehicles and mobile

home by 20 percent to reflect their quick sale value . She also

noted the encumbrance on the 2001 VW Passat and allowed a $7,200

exemption' under section 6334 (a) (2) for the motor home .10 Cochran

summarized petitioners' assets and liabilities as follows :

Assets

Cash/bank

Retirement accounts

Real estate

Mobile home

.Vehicles :

1990 VW Jetta

2001 VW Passat

Fai r

marke t

value

$13,110

105,440

36,000

8,950

Quick

Ne t

sale Encumbrance/ realizabl e

value exemption equit y

---$7,160

---$7,200

$13,11 0

105,44 0

36,00 0

-0 -

480

384

-38 4

10,330

8,264

7,948

(1129 6

174,310

15,808

155,23 0

15,148

1 There is a $20 discrepancy that is immaterial to our analysis .

As to the reported expenses, Cochran accepted petitioners'

figures for their housing, taxes, life insurance, and other

expenses . Cochran made some adjustments to petitioners' claime d

' Petitioners had actually reported that they had $13,418 in

their bank accounts . However, $308 of this amount was listed on

a separate document that supplemented the Form 433-A ; it appears

that Cochran overlooked this item .

' 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 .

10 Cochran did not take into account $3000 of furniture and

personal effects that petitioners had listed on their Form 433-A .

- 7 expenses for f

od, clothing, miscellaneous items, transportation,

and health car

First, Cochran determined that petitioners were

allowed a food

clothing, and miscellaneous items expense o f

$1,020 instead of the $1,271 that they claimed . Cochran stated

that she made

his adjustment in accordance with current national

guidelines and that she considered petitioners' particula r

circumstances

ut that they did not warrant allowing the higher

figure submitt d by petitioners . Cochran also reduced

petitioners' t ansportation expenses from $1,244 to $902 i n

accordance wit

the applicable guidelines . Finally, Cochran

adjusted petit oners' allowable health care expenses from the

$1,103 that th y claimed on their Form 433-A to $300 . Cochra n

noted that pet -tioners had not mentioned any health issues nor

provided any d bcumentation of medical bills . She also commente d

that the only health care-related expense that petitioners ha d

documented was a long-term care insurance policy expense of $182

a month . In s m, Cochran reduced petitioners' monthly allowable

expenses to $ 3 ,755 .

Cochran d termined that petitioners' monthly excess incom e

(i .e ., monthly income less monthly expenses)

was $796 ($4,55 1 -

income potential for the next

$3,755), that

etitioners'

48 months wa s

ipproximately $38,208 ($796 x 48 = $38,208),11 an d

11 Cochrar, used a 48-month factor because petitioners were

offering to co promise their tax liability by paying cash . Se e

(continued . . .)

- 8 that petitioners' reasonable collection potential was $193,438

(future income potential of $38,208 + net realizable equity of

$155,230) .

On May 19, 2005, Appeals issued petitioners the notice of

determination sustaining the proposed levy . The notice concludes

that petitioners' $35,000 offer-in-compromise is not an

appropriate collection alternative to the proposed levy . The

notice, citing Internal Revenue Manual (IRM) sections 5 .8 .5 .5 .1

and 5 .8 .5 .3 .1, states that petitioners' offer does not meet the

Commissioner's guidelines for consideration of an offer-incompromise due to doubt as to collectibility with special

circumstances . The notice, citing IRM section 5 .8 .11 .1(3),

states that petitioners' offer also does not meet the

Commissioner's guidelines for consideration as an offer-incompromise to promote effective tax administration .

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

collectibility with special circumstances, the notice states :

the taxpayers [petitioners] have the ability to pay

more than the offer amount from either the equity in

their assets or their income stream while still meeting

their necessary basic living expenses, in accordance

with IRM 5 .8 .5 .5 .1 . The taxpayers' representative

contended that the taxpayers', equity in their assets

and any collection potential from future income should

be offset against possible future expenses that might

be incurred throughout the rest of the taxpayers'

lives . The Settlement Officer noted, however, tha t

`(

. .continued )

Internal Revenue Manual (IRM) sec . 5 .8 .5 .5 .

these pos pible future expenses are general projections

from the taxpayers' representative and may never, in

fact, be Lncurred . The present offer, therefore, must

be consi d Ored within the framework of present facts .

ers have an ability to pay substantially more

mount being offered, as per the guidelines of

evenue Manual 5 .8 .5 .3 .1 . The taxpayers '

ces have been documented and considered but

icient to permit acceptance of an offe r

t is 18% of the RCP [reasonable collectio n

potential] ($35,000/$193,438) .

The taxpa

than the

Internal

circumsta

are insuf

amount th

As to petitio n ers' offer-in-compromise to promote effective ta x

administratio n

the notice states :

f the taxpayers' finances shows that the

Analysis

'

equity in assets plus present and futur e

taxpayers

less

than the assessed amounts to b e

income ar

fed

.

The

taxpayers, therefore, fail to mee t

compromis

the requirements for consideration of an offer in

compromise based on Effective Tax Administration, as

per the guidelines of Internal Revenue Manua l

5 . 8 .11 .1('3 )

The notice further states as to Cochran's balancing of efficien t

collection with the legitimate concerns of taxpayers tha t

The taxpayers' concerns about the proposed collection

action generally fall within two areas : (1) pending

litigation (the innocent spouse case and the interest

abatement case) and (2) a viable collection alternative

in the form of their $35,000 offer in compromise .

The Settlement Officer has balanced the taxpayers'

first area of concern by researching both cases . The

Settlement Officer confirmed that on February 25, 2005

a stipulation has [sic] been entered into [sic] Tax

Court regarding the taxpayer-wife's innocent spouse

case . In that stipulation, with [sic] the taxpayerwife conceding [sic] that she is not entitled to relief

under IRC § 6015(b), (c), or (f), and that she waives

the restrictions of IRC § 6015(e) (1) (B) (i) . The

Settlement Officer also researched the taxpayers'

interest abatement case and was unable to locate

evidence that this case has been considered by IRS to

- 10

date . As a result, the Settlement Officer considered

the taxpayers' request for interest abatement within

the present hearing .

With respect to the taxpayers' second area of concern,

the Settlement Officer has evaluated the taxpayers'

$35,000 offer to compromise the underlying liabilities

as a collection alternative to the proposed levy

action . Based on that evaluation, the taxpayers' offer

of $35,000 could not be recommended for acceptance, and

therefore cannot be considered as a collection

alternative . The taxpayers requested no other

collection alternative to be considered .

In all other respects, therefore, 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 previously

filed a request for interest abatement with respondent but that

the request had not yet been acted upon . She therefor e

considered the interest abatement request as part of petitioners'

hearing . Cochran ultimately determined that petitioners were not

entitled to their claim for an abatement of interest, eithe r

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

OPINION

This case is yet another in a long list of cases brought i n

this Court involving respondent's proposal to levy on the assets

of a partner in a Hoyt partnership to collect Federal income

- 11 taxes attribut ble to the partner's participation in the

partnership .

etitioners argue that Appeals was required to let

them pay $35,0

0 to compromise what they estimate is their

approximately

575,000 Federal income tax liability for 1981

through 1998 .

Where an underlying tax liability is not at issue

in a case invo

ing our jurisdiction under section 6330(d), w e

review the determination of Appeals for abuse of discretion . See

Sego v . Commissioner , 114 T .C . 604, 610 (2000) ; see also Clayto n

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

Barnes v . Commissioner ,

T .C . Memo . 200 (-150 . We reject the determination of Appeals onl y

if the determination was arbitrary, capricious, or without sound

basis in fact Or law . See Cox v . Commissioner , 126 T .C . 237, 25 5

(2006) ; Murphy v . Commissioner , 125 T .C . 301, 308, 320 (2005) ,

affd . 469 F .3d 27 (1st Cir . 2006) .

Where, a s here, we decide the propriety of Appeals's

rejection of a

offer-in-compromise, we review the reasonin g

underlying tha rejection to decide whether the rejection was

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

We do not subs itute 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 ; ee also Clayton v . Commissioner ,

Commissioner ,

supra ;

Barnes v .

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

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

- 12 (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 ."

Commissioner ,

Murphy v .

supra at 315 .1 2

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 t o

12 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 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 .

- 13 lines to determine when a taxpayer's offer-in-

prescribe gu

icompromise h

ld be accepted . The applicable regulations,

.7 osectin301

2-1(b), Proced . & Admin . Regs ., list three grounds

1onwhicte

mmissioner may accept an offer-in-compromise of a

CFedraltx

t . These grounds are "Doubt as to liability",

e"Doubtas

llectibility", and to "Promote effective ta x

c admin stra ion " . Sec . 301 .7122-1(b)(1), (2), and (3), Proced .

&

Admin . Regs .

Petitioners argue that respondent was required to compromis e

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

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

tax liability ue to doubt as to collectibility where th e

taxpayer's ass is 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 cue to doubt as to collectibility with specia l

circumstances ;

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

than the total

reasonable collection potential of the case . See

Rev . Proc . 200 -71, sec . 4 .02, 2003-2 C .B . 517, 517 . As to the

second ground,

the Commissioner may compromise a tax liability to

promote effect' ve tax administration when collection of the full

liability will

create economic hardship and the compromise would

not undermine

ompliance with the tax laws by taxpayers i n

general . See s ec . 301 .7122-1(b)(3)(i), (iii), Proced . & Admin .

- 14 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 they had assets worth $169,650 (i .e ., their assets'

total reported current value of $177,598 minus a $7,948

encumbrance on their VW Passat) . Cochran determined petitioners'

reasonable collection potential to be $193,438 . Therefore,

petitioners cannot fully pay their estimated $575,000 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-incompromise due to doubt as to collectibility with special

circumstances, the Commissioner evaluates such an offer by

- 15 applying the

ame factors (economic hardship or considerations of

spublico or equity) as in the case of an offer-in-compromise

y to prom te f ective tax administration . See IRM sec . 5 .8 .11 .2 .1

.2 . In a fand cordance with the Commissioner's guidelines, a n

cofer-inmp

mise due to doubt as to collectibility with

rspecial u stances should not be accepted even when economic

mhardsipoc

siderations of public policy or equit y

ocirumstane

re identified, if the taxpayer does not offer an

s ac eptable am

nt . See IRM sec . 5 .8 .11 .2 .1(11 )

oCchran

cpetionrsa

nsidered all of the evidence submitted to her by

applied the guidelines for evaluating a n

n of er-in compr mise due to doubt as to collectibility wit h

special circum tances or to promote effective tax administration .

As to the form r, Cochran determined that petitioners' offer was

unacceptable b cause they were able to pay more than the $35,000

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

latter, Cochran determined that petitioners' offer did no t

qualify as an

ffer-in-compromise to promote effective tax

administration because petitioners were unable to pay their

liability in f 11 . Cochran's determination to rejec t

petitioners' o fer-in-compromise was not arbitrary, capricious,

or without a s and basis in fact or law, and it was not abusive

or unfair to p titioners . Cochran's determination was based on a

reasonable app ication of the guidelines, which we decline to

- 16 second-guess . See Speltz v . Commissioner , 124 T .C . 165 (2005),

affd . 454 F .3d 782 (8th Cir . 2006) ;

Memo . 2006-188 ;

Clayton v . Commissioner , T .C .

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

Petitioners make eight arguments in advocating a contrary

result . First, petitioners argue that the Court lacks

jurisdiction to review the rejection of their offer-incompromise . Petitioners allege that Hoyt had a conflict o f

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 Hoy t

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 pay

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 .

v . Commissioner , 177 F .3d 119,

125 (2d Cir .

1998-347 ;

Chimblo

1999), affg . T .C .

17 Memo . 1997-535 1 ;

Columbia Bldg ., Ltd . v . Commissioner , 98 T .C .

607, 611 (1992 ) ;

Robinson v . Commissioner,

(1972) . Where

as here, the claim of a time bar relates to items

57 T .C . 735, 73 7

of a partnersh ip, the claim must be made in the partnershi p

proceeding and may not be considered at a proceeding involving

the personal i ,ncome tax liability of one or more of the partners

of the partner Ship . See Davenport Recycling Associates v .

Commissioner ,

at 125 ;

u ra at 1259-1260 ;

Chimblo v . Commissioner ,

supr a

Kaplanly . United States , 133 F .3d 469, 473 (7th Cir .

1998) .

Second, petitioners argue that Cochran's rejection of thei r

offer-in-compr mise conflicts with the congressional committe e

reports under ling the enactment of section

7122 .

According to

petitioners , their case

case ,

and thos e

reports requir

is a "longstanding "

that respondent resolve such cases by

forgiving

interest and p nalties that otherwise apply . We disagree with

petitioners' r

ading and application of the legislative history

underlying sec

ion 7122 . Petitioners' argument on this point i s

essentially th

same argument that was considered and rejected by

the Court of A peals for the Ninth Circuit in Fargo v .

Commissioner ,

47 F .3d at 711-712 . We do likewise here for the

same reasons s

ated in that opinion . We add that petitioners'

counsel partic pated in the appeal in Fargo v . Commissioner ,

supra , as coun el for the amici . While petitioners in their

- 18 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 . 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 item of income was a type of

retirement income that could reasonably be expected to remain

constant over the next 48 months . The record also shows that

- 19 Cochran condu c ed a thorough review of the documentatio n

submitted to h r by petitioners . Petitioners acknowledged tha t

they had no "e traordinary health issues" yet claimed monthly

health care ex enses of $1,103 . Cochran reviewed the Form 433-A

and found that petitioners' only documented health-relate d

expense was a

onthly long-term care insurance premium of $182 .

Nonetheless, s e allowed petitioners a monthly health car e

expense of $30

Although petitioners believe that Cochran's

calculation sh uld have reflected increased medical expenses in

the 48-month p riod and thereafter, we do not agree . See Farg o

v . Commissioned , 447 F .3d at 710 (it is not an abuse o f

discretion to

isregard claimed medical expenses that ar e

speculative or not related to the taxpayer) . Moreover, besides

their health c

re expenses, Cochran gave petitioners the benefi t

of the doubt in other instances as well . For example, she

accepted petiti

ners' claimed values of their vehicles even

though they pro ided no substantiation of this and also claime d

that some of th it vehicles had either no or de minimis value .

Cochran also ac epted petitioners' valuation of their real estate

and mobile home even though they obtained these values from tax

assessments and the fair market value of these properties coul d

have been highe

. Although Cochran made some adjustments to some

of petitioners'

claimed expenses, she did so in accordance wit h

the Commissione

s national and local guidelines and after

- 20 evaluating petitioners' particular circumstances . We find no

abuse of discretion in these adjustments .

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 $35,000 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 full-time care to a dependent child with a serious

long-term illness . A second example involves a taxpayer who

would lack adequate means to pay his basic living expenses 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),

(a),

and Q), Proced . &

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

this case but instead "describe more dire circumstances" .

v . Commissioner , 454 F .3d at 786 .

Feltz

- 21 Nor have petitioners articulated with any specificity th e

purported econ pmic hardship they will suffer if they are no t

allowed to com romise their liability for $35,000 . Whil e

petitioners cl Haim generally that the sale of their residenc e

would create a n economic hardship in that they would be unable t o

afford paying ?ither rent or a mortgage, this claim is vague ,

speculative, u ndocumented, and unavailing . 13 See Barnes v .

Commissioner ,

. C . Memo . 2006-150 .

We also a re mindful that any decision by Cochran to accep t

petitioners' o

fer-in-compromise due to doubt as t o

collectibility with special circumstances must be viewed against

the backdrop o

section 301 .7122-1(b)(3)(iii), Proced . & Admin .

Regs . That se

tion requires that Cochran deny petitioners' offer

if her acceptaii ce of it would undermine voluntary compliance wit h

tax laws by to payers in general . Thus, even if we were to

assume arguend that petitioners would suffer economic hard ship ,

a finding tha t we emphasize we decline to make, we would not fin d

that Cochran' s rejection of petitioners' offer was an abuse o f

discretion bec4use we conclude below (in our discussion o f

petitioners'

f

fth argument) that her acceptance of that offe r

13 We note that our opinion here does not necessarily mean

that responden

may in fact levy on petitioners' residence i n

payment of the' r tax debt . Pursuant to sec . 6334(a)(13)(B) and

(e), a taxpaye 's principal residence is exempt from levy absent

the written ap royal of a U .S . District Court Judge o r

Magistrate . S e also sec . 301 .6334-1(d), Proced . & Admin . Regs .

- 22 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 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, sec . 4 .02,

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 . See

Speltz v . Commissioner ,

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

- 23 may require a hange of lifestyle .19 See Clayton v .

Commissioner ,

C .

Memo . 2006-188 ;

Barnes v . Commissioner ,

supra .

We also b lieve that compromising petitioners' case on

grounds of pub is policy or equity would not promote effective

tax administra ion . While petitioners portray themselves as

victims of Hoy 's alleged fraud and respondent's alleged delay in

dealing with H yt, they take no responsibility for their tax

predicament . WII r cannot agree that acceptance by respondent of

petitioners' $3 ,000 offer to satisfy their estimated

approximately $ 75,000 tax liability would enhance voluntary

compliance by o her taxpayers . A compromise on that basis would

place the Gover ment in the unenviable role of an insurer against

poor business d cisions by taxpayers, reducing the incentive for

taxpayers to in estigate thoroughly the consequences of

transactions in o which they enter . It would be particularly

inappropriate for the Government to play that role here, wher e

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

to be exhaustive and petitioners' situation is not identical to

that of the taxp yers in Fargo v . Commissioner , 447 F .3d at 714,

regarding whom t e Court of Appeals for the Ninth Circuit noted

that "no evidenc was presented to suggest that Taxpayers were

the subject of f and or deception" . Such considerations,

however, have no kept this Court from finding investors in

Hoyt's shelters o be culpable of negligence, see, e .g ., Keller

v . Commissioner , T .C . Memo . 2006-131, nor prevented the Courts of

Appeals for the ixth, Ninth, and Tenth Circuits from affirming

our decisions to that effect in Hansen v . Commissioner , 471 F .3d

1021 (9th Cir . 2 06), 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 .

- 24 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

Commissioner ,

supra ;

laws .15 See

Barnes v . Commissioner ,

Clayton v .

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

regarding the taxpayers represents the only efficient means for

collection of the liability 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 th e

is 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 .

- 25 Secretary's po icies and procedures", sec . 301 .7122-1(c)(1),

Proced . & Admi

. Regs ., we find to the contrary . Cochran

thoroughly con idered petitioners' arguments for accepting their

offer-in-compr mise, and she rejected the offer only after

concluding tha petitioners could pay much more of their tax

liability than he $35,000 they offered . Cf . IRM sec .

5 .8 .11 .2 .1(11) ("When hardship criteria are identified but the

taxpayer does n t offer an acceptable amount, the offer should

not be recommen ed for acceptance") .

Seventh, p titioners argue that Cochran inappropriately

failed to consi er whether they qualified for an abatement of

interest for re sons other than those described in section

6404(e) . We di agree . While Cochran declined to accept

petitioners' re uest to reject the proposed levy because she had

considered their request for interest abatement and found that

they were not en itled to such relief, we find nothing to suggest

that Cochran bel eyed that petitioners' sole remedy for interest

abatement in thi case rested on the rules of section 6404(e) .

In fact, regardl ss of the rules of section 6404(e), Cochran

obviously would ave abated interest in this case had she agreed

to let petitione s compromise their estimated approximately

$575,000 liabilit by paying less than the amount of interest

included within t at liability .

Eighth, peti ioners argue that Cochran erred by not

informing petitio ers of the contents of the notice of

- 26 determination before it was issued . We disagree . We do not

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 hold that Appeals did not abuse its discretion in

rejecting petitioners' $35,000 offer-in-compromise . In so

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

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

$35,000 . 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 orde r

will be issued .