Donald J. Barnes and Beverly A. Edwards, f.k.a. Beverly A. Barnes - Page 12

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          1995, the joint returns and the separate returns filed by                   
          petitioner were prepared by Mr. Hoyt or one of his tax services.            
               In 1981, petitioner and Mr. Barnes met with Mr. Hoyt                   
          concerning a possible investment in a Hoyt investor partnership.            
          Mr. Barnes had known Mr. Hoyt for many years prior to the time              
          that petitioner and Mr. Barnes made their investment in 1981, and           
          Mr. Barnes knew that Mr. Hoyt had been involved in cattle                   
          ranching.  Prior to her meeting with Mr. Hoyt, petitioner                   
          believed that David Barnes was interested in raising sheep and              
          that he was interested in expanding what essentially was his                
          hobby into a commercial sheep ranching operation.  Petitioner               
          believed that David Barnes was working with Mr. Hoyt in                     
          developing a business related to sheep ranching, and petitioner             
          knew that David Barnes wanted petitioner and Mr. Barnes to speak            
          with Mr. Hoyt about this business.  As a result of the 1981                 
          meeting, petitioner and Mr. Barnes made the decision to invest in           
          one of the sheep partnerships organized and promoted by Mr. Hoyt,           
          namely RCR #1.  Petitioner and Mr. Barnes did not invest any cash           
          at the time they initially decided to make the investment.                  
          Instead, the invested funds were obtained using the tax refunds             
          that Mr. Hoyt helped secure by preparing tax forms for petitioner           
          and Mr. Barnes.  Petitioner and Mr. Barnes agreed that Mr. Hoyt             
          would retain 75 percent of the tax refunds that they were to                
          receive, and that petitioner and Mr. Barnes would receive the               






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