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Hoyt’s organization prior to investing. Petitioners also did not
visit or otherwise investigate the cattle partnership prior to
making the investment, although at a later time they visited a
sheep ranch that they believed was related to their investment.
Petitioners’ initial investment was into a cattle
partnership known as Shorthorn Genetic Engineering 86-5 (SGE 86-
5). Petitioners did not make any payment immediately upon
signing the investment documents. Rather, the funds for their
initial investment were to be derived from the refunds
petitioners were to receive upon filing their tax returns.
By letter dated October 21, 1987, respondent notified
petitioners that the refund that petitioners had requested on
their 1986 return had been frozen. The letter stated in relevant
part:
We have reviewed certain tax deductions and/or credits
which are attributable to the above tax shelter
promotion [SGE 86-5]. Based upon our review of that
promotion, we believe that the tax deductions and/or
credits are not allowable. Accordingly, we have
reduced the portion of any refund due to you which is
attributable to the tax shelter promotion.
The examination of the tax shelter promotion will be
completed as expeditiously as possible. If the
examination results in adjustments to your return, you
will be afforded the opportunity to exercise your
appeal rights.
Prior to preparing petitioners’ next tax return, for 1987, Mr.
Hoyt’s organization transferred petitioners’ partnership interest
from the SGE 86-5 cattle partnership to a sheep partnership known
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