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(2001), where we denied relief under section 6015(b) in a case
involving Hoyt investments, neither petitioner nor Mr. Bartak
knew the facts that made the flowthrough losses from the Hoyt
partnerships unallowable as deductions on their joint returns,
and both petitioner and Mr. Bartak put their trust in the Hoyt
organization to determine the basis for, propriety of, and amount
of their deductions.
It is significant that petitioner knew (1) of the Hoyt
investment, (2) the Hoyt investment was designed to generate
large deductions resulting in substantial tax savings, (3) those
deductions were taken on joint returns for the years in issue,
and (4) there was a risk that the deductions might be disallowed
by the IRS. Jonson v. Commissioner, 118 T.C. at 118.
“Tax returns setting forth large deductions, such as tax
shelter losses offsetting income from other sources and
substantially reducing * * * the couple’s tax liability,
generally put a taxpayer on notice that there may be an
understatement of tax liability.” Hayman v. Commissioner, 992
F.2d at 1262. Furthermore, the court in Price noted that the
size of the deduction in issue vis-a-vis the total income
reported on the return, when considered in light of the fact that
the taxpayer knew of the investment and its nature, is enough to
put the taxpayer on notice that an understatement exists (and,
therefore, if the duty of inquiry is not discharged, leads to an
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