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to honor their obligations to Ranches and continue to participate
in the partnership and inactive partners as those who have walked
away from their note obligations and/or no longer participate in
the partnership.
As an alternative, respondent made a settlement offer to the
partners on an individual basis. The terms of the offer provided
generally that a partner who accepted would be allowed a
deduction for any cash paid to the "Hoyt Organization" in the
year of payment. The partner would not be allowed any other
deductions or credits nor be required to recognize any income
related to the partnerships. The record does not indicate how
many partners accepted this settlement offer (referred to as the
out-of-pocket settlement).
Respondent's spreadsheets calculating the partners'
interests in the partnerships have been stipulated and have been
received into evidence. For the first year, respondent allocated
a portion of the partnership debt, which consisted of the reduced
amount of the notes to Ranches, to each of the partners who
assumed personal liability. The allocation was based on the
original percentages of partnership liabilities assumed as
reflected in the partnerships' books and records. The resulting
amounts represented each partner's beginning capital account
balance. Each year respondent adjusted these balances for actual
capital contributions made to the partnerships and for increases
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Last modified: May 25, 2011