River City Ranches #1 Ltd., Leon Shepard, Tax Matters Partner - Page 48

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               While petitioners argue that a theft occurred in each year              
          equal to the total amount of cash contributed in that year, they             
          admit that each of the sheep partnerships did not discover the               
          alleged thefts until after the years at issue.  However,                     
          petitioners argue that this Court should apply the doctrine of               
          equitable estoppel and the Ninth Circuit’s holding in Rod Warren             
          Ink v. Commissioner, 912 F.2d 325, 326 (9th Cir. 1990), revg. 92             
          T.C. 995 (1989), to the “exceptional circumstances” presented in             
          this case, to override section 165(e) and allow each partnership             
          to deduct a theft loss for each of the years at issue.                       
          Petitioners acknowledge that they seek this remedy to reduce the             
          amount of interest that individual partners will be assessed as a            
          result of the partnership adjustments.                                       
               Petitioners assert that if the IRS had warned the investor-             
          partners that serious problems existed and disclosed information             
          the IRS had regarding Jay Hoyt’s diverting of their funds and                
          selling of nonexistent sheep to their partnerships, the partners             
          would not have continued investing in the partnerships and would             
          have stopped their payments to the Hoyt organization.  At a                  
          minimum, petitioners state, these partners might have been able              
          to discover the theft earlier, allowing the partnerships and                 
          themselves to claim earlier offsetting theft loss deductions.                
          Petitioners thus maintain that each partnership under equitable              
          principles should be allowed a theft loss deduction for each of              






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