- 27 -
e. Conclusion
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
imputation of “reason to know” of the understatement). Price v.
Commissioner, 887 F.2d at 966 ($90,000 deduction and just more
than $100,000 in income).
Petitioner did not ask any questions about the Hoyt
investment deductions even though the loss surprised petitioner
because it was so large. Petitioner never asked any questions
about the Hoyt partnerships until they declared bankruptcy (after
Page: Previous 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 NextLast modified: May 25, 2011