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Petitioners suggest that the abatement was a quid pro quo for Jay
Hoyt’s executing the extensions. The Court rejects this as an
unwarranted supposition on the part of petitioners.
In light of the issuance of the 1989 test case opinion in
Bales v. Commissioner, T.C. Memo. 1989-568, we believe that the
IRS, in all likelihood, chose to abate most of these penalties
because of doubts about whether its imposition of the penalties
ultimately would be sustained if Jay Hoyt were to bring a refund
suit in U.S. District Court challenging the propriety of the
penalties. As noted previously, this Court in Bales did not
sustain respondent’s disallowance of many of the tax benefits a
number of partners in Hoyt cattle partnerships claimed for 1977,
1978, and 1979. This Court decided, among other things, that the
Bales partnerships had acquired the benefits and burdens of
ownership with respect to specific breeding cattle, that the
purchase prices for the partnership cattle did not exceed the
fair market value of those cattle, and that the promissory notes
these partnerships issued were valid recourse indebtedness.
Also, in order to hold Jay Hoyt liable for certain return
preparer penalties, the Government in such refund suit would have
the burden of proof in establishing Jay Hoyt’s liability for the
penalty and would have to show, among other things, that Jay Hoyt
had known that the deductions and credits claimed were incorrect
and would result in an understatement of another’s tax. See
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