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additional interest on the disallowed partnership tax benefits
they claimed.
For all the years at issue, the sheep partnerships
distributed substantial tax benefits to the sheep partners under
Jay Hoyt’s and the Hoyt organization’s tax shelter program. Up
until the time the amended petitions were filed in the instant
case following the River City Ranches #4, J.V. v. Commissioner,
T.C. Memo. 1999-209, test case opinion in June 1999, the TMP
maintained that the sheep partnerships were entitled to the tax
benefits reported on the partnership tax returns. From 1993
through 1999, the sheep partners chose to await the outcome of
the Tax Court litigation between respondent and their
partnerships, undoubtedly hoping that this litigation would
validate their entitlement to their claimed partnership tax
benefits. Yet, these partners also knew or should have known
that if respondent’s position in this litigation was upheld, the
Internal Revenue Code requires interest to be imposed on their
resulting income tax underpayments. See Niedringhaus v.
Commissioner, 99 T.C. 202, 222 (1992)(“As a general rule,
taxpayers are charged with knowledge of the law.”).
Petitioners’ argument is in no way analogous to the
“inequitable and absurd” result in Rod Warren Ink, where the PHC
would have been required to declare income it never actually
received if not for the departure from section 165(e). In the
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