Estate of Carol Andrews, Deceased, Robert Andrews, Special Administrator, and Robert Andrews - Page 24

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          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                 
               that TEFRA is unfair and that the liabilities accrued                  
               in large part due to the actions of the Tax Matters                    
               Partner (TMP) during the audit and litigation.  Neither                
               the operation of the TEFRA rules nor the TMP’s actions                 
               on behalf of the taxpayer provide grounds to compromise                
               under the equity provision of paragraph (b)(4)(i)(B) of                
               this section.  Compromise on those grounds would                       
               undermine the purpose of both the penalty and interest                 
               provisions at issue and the consistent settlement                      
               principles of TEFRA. * * *                                             
          1 Administration, Internal Revenue Manual (CCH), sec.                       
, at 16,378.  We agree with respondent that the                
          example presents circumstances similar to those in petitioners’             
          case, including:  Petitioners invested in TEFRA partnerships in             
          the early 1980s; petitioners’ outstanding tax liability is                  
          related to their investment in the partnerships; FPAAs were                 

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