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In 1989, petitioners received from the Hoyt organization a
copy of this Court’s opinion in Bales v. Commissioner, T.C. Memo.
1989-568. Mr. Hoyt touted the Bales opinion as proof that the
Hoyt partnerships were legal, and that the IRS was incorrect in
challenging their tax claims. Petitioners read the opinion, and
Ms. Hansen believed that “It set a precedent for the ability to
be able to use this business to be able to recap depreciation and
losses through tax writeoffs.” Despite the fact that neither
petitioners nor their partnerships were involved as parties in
the Bales case, Ms. Hansen believed that the opinion meant “that
the things that needed to be understood that weren’t previously
were now understood, that is was a legal operation and that
nothing was wrong” with respect to the tax benefits being derived
from the Hoyt partnerships.
Petitioners made substantial cash payments to the Hoyt
organization during the years 1987 through 1997. In a summary of
such payments prepared by petitioners, they estimate that the
total amount of these payments exceeds $100,000. These payments
included the remittance of their tax refunds, the payment of
quarterly and monthly installments on their promissory notes,
special “assessments” imposed by the partnerships, and
contributions to purported individual retirement account plans
maintained by the Hoyt organization. Petitioners have not
received any of their contributions back from the Hoyt
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