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Petitioners argue that respondent was required to compromise
their tax liability to promote effective tax administration. The
Commissioner may compromise a tax liability to promote effective
tax administration when collection of the full liability will
create economic hardship and the compromise would not undermine
compliance with the tax laws by taxpayers in general. See sec.
301.7122-1(b)(3)(i), (iii), Proced. & Admin. Regs. If a taxpayer
does not qualify for effective tax administration compromise on
grounds of economic hardship, the regulations also allow the
Commissioner to compromise a tax liability to promote effective
tax administration when the taxpayer identifies compelling
considerations of public policy or equity. See sec. 301.7122-
1(b)(3)(ii), Proced. & Admin. Regs.
Cochran determined that petitioners’ reasonable collection
potential was either $546,417 or $431,417. Under either
calculation, petitioners can afford to pay their estimated
approximately $275,000 tax liability and therefore only 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).
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