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(i) Application of Equitable Estoppel
Petitioners argue that the doctrine of equitable estoppel
precludes respondent from relying on section 165(e) as a basis
for disallowing their claims to theft loss deductions.
Specifically, petitioners argue that respondent’s actions and
inactions in the course of auditing all the Hoyt organization
partnerships since the early 1980s resulted in the concealment of
material evidence from the partnerships and misleading silence to
the partnerships. They claim that through the audit process
respondent obtained information of Jay Hoyt’s fraud, yet failed
to timely inform them of this fraudulent activity. Further, they
allege that they relied to their detriment on respondent’s
concealment or misleading silence relating to the fraud.
As a threshold matter, petitioners must prove affirmative
misconduct by the Government in addition to the traditional
elements of equitable estoppel. See Purcell v. United States, 1
F.3d 932, 939 (9th Cir. 1993). Petitioners have failed to show
the traditional elements of equitable estoppel, much less
affirmative misconduct by respondent. They presented no evidence
of ongoing active misrepresentations or a pervasive pattern of
false promises by respondent. Having failed to show affirmative
misconduct by the Government, we conclude that petitioners cannot
assert equitable estoppel against respondent to deviate from the
year of discovery requirement in section 165(e).
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