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type of challenge by the Commissioner, no matter how illegitimate
the partnerships had become or how unreasonable the taxpayers
were in making investments therein and claiming the tax benefits
that Mr. Hoyt promised would ensue.
E. Fairness Considerations
Petitioners’ final arguments concerning application of the
accuracy-related penalty are in essence arguments that imposition
of the penalty would be unfair or unjust in this case.
Petitioners argue that “The application of penalties in the
present case does not comport with the underlying purpose of
penalties.” To this effect, petitioners argue that, in this
case,
the problem was not Petitioners’ disregard of the tax laws,
but was Jay Hoyt’s fraud and deception. Petitioners did not
engage in noncompliant behavior, instead they were the
victims of a complex fraud that it took Respondent years to
completely unravel.
Petitioners made a good faith effort to comply with the tax
laws and punishing them by imposing penalties does not
encourage voluntary compliance, but instead has the opposite
effect of the appearance of unfairness by punishing the
victim. Indeed, penalties are improper for any investor in
the Hoyt partnerships on a policy basis alone. [Fn. ref.
omitted.]
We are mindful of the fact that petitioners were victims of Mr.
Hoyt’s fraudulent actions. Petitioners ultimately lost the bulk
of the tax savings that they received, which they had remitted to
Mr. Hoyt as part of their investment, and which they never
received back. Nevertheless, petitioners believed that this
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