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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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