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respondent’s clear understanding and careful consideration of the
facts and circumstances of petitioners’ case. We find that
respondent’s determination that the “equitable facts” did not
justify acceptance of petitioners’ offer-in-compromise was not
arbitrary or capricious, and thus it was not an abuse of
discretion.
We also find that compromising petitioners’ case on grounds
of public policy or equity would not enhance voluntary compliance
by other taxpayers. A compromise on that basis would place the
Government in the unenviable role of an insurer against poor
business decisions by taxpayers, reducing the incentive for
taxpayers to investigate thoroughly the consequences of
transactions into which they enter. It would be particularly
inappropriate for the Government to play that role here, where
the transaction at issue is participation in 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 laws. See Barnes
v. Commissioner, supra.
C. Petitioners’ Other Arguments
1. Compromise of Penalties and Interest in an Effective
Tax Administration Offer-in-Compromise
Petitioners advance a number of arguments focusing on their
assertion that respondent determined that penalties and interest
could not be compromised in an effective tax administration
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