Gary W. McDonough - Page 22

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              Respondent’s rejection of petitioner’s longstanding case                
         argument was not arbitrary or capricious.                                    
                   2.   The Internal Revenue Manual Example                           
              Petitioner argues that respondent erred when he determined              
         that petitioner was not entitled to relief according to the                  
         second example in IRM section  Petitioner asserts             
         that many of the facts in this case were not present in the                  
         example and, therefore, any reliance on the example was                      
         misplaced.  Petitioner’s argument is not persuasive.                         
              IRM section discusses ETA offers-in-compromise            
         based on equity and public policy grounds and states in the                  
         second example:                                                              
               In 1983, the taxpayer invested in a nationally marketed                
               partnership which promised the taxpayer tax benefits                   
               far exceeding the amount of the investment.                            
               Immediately upon investing, the taxpayer claimed                       
               investment tax credits that significantly reduced or                   
               eliminated the tax liabilities for the years 1981                      
               through 1983.  In 1984, the IRS opened an audit of the                 
               partnership under the provisions of the Tax Equity and                 
               Fiscal Responsibility Act of 1982 (TEFRA).  After                      
               issuance of the Final Partnership Administrative                       
               Adjustment (FPAA), but prior to any proceedings in Tax                 
               Court, the IRS made a global settlement offer in which                 
               it offered to concede a substantial portion of the                     
               interest and penalties that could be expected to be                    
               assessed if the IRS’s determinations were upheld by the                
               court.  The taxpayer rejected the settlement offer.                    
               After several years of litigation, the partnership                     
               level proceeding eventually ended in Tax Court                         
               decisions upholding the vast majority of the                           
               deficiencies asserted in the FPAA on the grounds that                  
               the partnership’s activities lacked economic substance.                
               The taxpayer has now offered to compromise all the                     
               penalties and interest on terms more favorable than                    
               those contained in the prior settlement offer, arguing                 

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