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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.
5.8.11.2.2(3), at 16,378. Ms. Cochran determined that
petitioners’ case is similar to the example:
It’s similar to the case at hand in that it involved
old periods, 1983 periods. It’s similar in the sense
that * * * it was a TEFRA proceedings [sic] involving
an audit of a partnership. The taxpayer was offered
and rejected a settlement officer [sic] from IRS.
After several years of litigation, the partnership
ended up in Tax Court. * * * FPAAs were issued. The
taxpayer now offered to compromise all the penalties
and interest on terms more favorable than those
originally contained in the settlement offer17 and that
there--the taxpayer raised issues about the TMP’s
actions on behalf of the taxpayer.
We agree with Ms. Cochran that the example presents circumstances
similar to those in petitioners’ case.
Petitioners are correct in asserting that not all of the
facts in their case are present in the example. However, it is
17 Mr. Carter testified that they received a settlement
offer from respondent in or around 1990. Mr. Carter could not
remember the details of the settlement offer, nor was the offer
in the record.
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