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and that the partners did not knowingly participate in this
fraud. Petitioners argue that it would be an absurd result to
penalize and impose section 6621(c) interest against these
victims of Jay Hoyt’s fraud, who (petitioners allege) invested
without the principal purpose of tax avoidance and genuinely
believed that their partnership was engaged in a legitimate
business activity.
Petitioners further argue that since they have conceded all
of the depreciation deductions and investment credits that the
Hoyt sheep partnerships claimed, the Court should find that there
are no valuation overstatements because any statements of value
or adjusted basis on the partnership returns concerning the
partnership’s purported breeding sheep are now irrelevant. In
making this argument, petitioners are relying upon and seeking to
come within the decisions by the U.S. Courts of Appeals for the
Fifth and Ninth Circuits and this Court in Todd v. Commissioner,
862 F.2d 540 (5th Cir. 1988), affg. 89 T.C. 912 (1987), Gainer v.
Commissioner, 893 F.2d 225 (9th Cir. 1990), affg. T.C. Memo.
1988-416, and McCrary v. Commissioner, 92 T.C. 827 (1989),
respectively.
Todd, Gainer, and McCrary all held that the section 6659
addition to tax for valuation overstatement was inapplicable
where the taxpayer conceded that no deductions or credits were
allowable, due to property not having been placed in service.
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