Gary D. and Johnean F. Hansen - Page 17

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          year, depending upon the circumstances, in order to meet the                
          section 469 requirements.  Mr. Hoyt stated that the time                    
          investors spent in recruiting new investors, as well as “reading            
          and thinking about these letters”, would count toward the                   
          material participation hourly requirements.  Finally, in this               
          letter Mr. Hoyt emphasized that “The position of your partnership           
          is that it is not a tax shelter”, because tax shelters “are never           
          recognized for Federal income tax purposes.”  By letter dated               
          February 11, 1992, respondent mailed petitioners a notice                   
          stating:                                                                    
                    In Mr. Hoyt’s letter misleading and/or inaccurate                 
               premises were made which may directly affect you and your              
               decision-making process in filing your 1991 individual tax             
               return.                                                                
                    First, a “tax shelter” is not necessarily synonymous              
               with a “sham” investment.  Low income housing credits, your            
               personal residence, and real estate rentals are examples of            
               tax shelters.  It is an oversimplification to state tax                
               shelters are never recognized for Federal income tax                   
               purposes.                                                              
                    The letter stated that I failed to include number seven           
               of the regulations which addresses the facts and                       
               circumstances test.  Enclosed is the exact wording of this             
               test, Regulation 1.469-5T(a)(7), and example #8 which refers           
               to this regulation.  Also enclosed is paragraph (b) that is            
               referred to in paragraph (a)(7).  Section 1402 noted in                
               paragraph (b) defines income subject to self-employment tax.           
               In the past, and currently, Mr. Hoyt has used Revenue                  
               Rulings 56-496, 57-58, and 64-32 as authorities for                    
               investors having met the material participation requirement.           
               These rulings and the court cases he has cited are prior to            
               the enactment of section 469 and all refer to section 1402.            
               Please note in (b)(2) that meeting the material                        
               participation requirement of Section 1402 is specifically              
               excluded from being taken into account for having met the              
               material participation requirement of section 469 in using             
               the facts and circumstances test of (a)(7).                            






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