Tax News

CCH (cch.taxgroup.com) reports:

  The Tax Court properly found that the IRS did not abuse its discretion in rejecting the offers-in-compromise of individual partners who had underreported their income in Hoyt partnership tax shelter investments. The IRS considered all of the evidence submitted, and adequately evaluated each offer-in-compromise. The offers-in-compromise were not accepted based on doubt as to collectibility or economic hardship because the taxpayers were capable of paying far more than the amount they offered. Public policy and equity considerations did not demand that the IRS accept the partners' offers on the ground that the taxpayers were victims of fraud or third-party misdeeds. Acceptance of the offers would undermine compliance with the tax laws by encouraging more taxpayers to participate in tax shelters, and would also undermine public confidence in administration of the tax laws. The IRS was also not required to consider the taxpayers' future medical needs, since their evidence regarding such needs was highly speculative.

  Moreover, the delay in determining the individual tax liabilities was due to the complexity of the tax-shelter partnerships and did not require the IRS to abate penalties and interest. Therefore, the IRS was permitted to proceed with its proposed collection actions to recover full payment of the outstanding tax liabilities. Further, the IRS's reliance on an example in the Internal Revenue Manual was not arbitrary or capricious. The IRS also had no legal obligation to consider each of the factors identified in C.G. Fargo , CA-9, 2006-1 USTC ¶50,326, 447 F3d 706, before rejecting the offers-in-compromise.

  However, the Tax Court erroneously determined that it lacked jurisdiction in the partner-level proceedings to determine whether the partnerships' transactions were tax motivated for purposes of Code Sec. 6621(c). Since the IRS included Code Sec. 6621(c) interest in its notices of determination, the Tax Court had jurisdiction to consider the partners' challenge to the amount of their liability, including liability for additional interest penalties. Further, the partnership-level records established that the partners' underpayments were attributable to a tax motivated transaction as defined in Code Sec. 6621(c) because the difference between the claimed value and the adjusted value was attributable to either an overvaluation or sham transaction. Finally, a partner-level determination with respect to whether each partner made the valuation overstatement in good faith was unnecessary because Code Sec. 6621 does not incorporate the discretionary waiver for good faith underpayments in
Code Sec. 6659(e).

  Affirming in part and vacating in part, the Tax Court, 92 TCM 114, Dec. 56,587(M), TC Memo. 2006-166.

M.W. Keller, CA-9, 2009-1 USTC ¶50,428

Other References:

 
Code Sec. 6621

  CCH Reference - 2009FED ¶39,455.58

  CCH Reference - 2009FED ¶39,455.68

 
Code Sec. 7122

  CCH Reference - 2009FED ¶41,130.29

  Tax Research Consultant

  CCH Reference - TRC PENALTY: 9,050
CCH Reference - TRC IRS: 42,056.10
CCH Reference - TRC IRS: 42,056.15
CCH Reference -
TRC IRS: 42,120
CCH Reference - TRC INDIV: 48,352