Gary D. and Johnean F. Hansen - Page 14

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               In 1989, petitioners received from the Hoyt organization a             
          copy of this Court’s opinion in Bales v. Commissioner, T.C. Memo.           
          1989-568.  Mr. Hoyt touted the Bales opinion as proof that the              
          Hoyt partnerships were legal, and that the IRS was incorrect in             
          challenging their tax claims.  Petitioners read the opinion, and            
          Ms. Hansen believed that “It set a precedent for the ability to             
          be able to use this business to be able to recap depreciation and           
          losses through tax writeoffs.”  Despite the fact that neither               
          petitioners nor their partnerships were involved as parties in              
          the Bales case, Ms. Hansen believed that the opinion meant “that            
          the things that needed to be understood that weren’t previously             
          were now understood, that is was a legal operation and that                 
          nothing was wrong” with respect to the tax benefits being derived           
          from the Hoyt partnerships.                                                 
               Petitioners made substantial cash payments to the Hoyt                 
          organization during the years 1987 through 1997.  In a summary of           
          such payments prepared by petitioners, they estimate that the               
          total amount of these payments exceeds $100,000.  These payments            
          included the remittance of their tax refunds, the payment of                
          quarterly and monthly installments on their promissory notes,               
          special “assessments” imposed by the partnerships, and                      
          contributions to purported individual retirement account plans              
          maintained by the Hoyt organization.  Petitioners have not                  
          received any of their contributions back from the Hoyt                      






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