Kenneth and Dorothy Hitchen - Page 21

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               Petitioners filed a tax return for 1986, the initial year of           
          their investment, using a tax return preparer affiliated with the           
          Hoyt organization.  Petitioners claimed a partnership loss for              
          1986 that purportedly reduced their tax liability to zero for               
          that year.  Relatively soon after filing their 1986 return, in              
          October 1987, respondent notified petitioners that respondent               
          believed that the partnership loss was not allowable and that               
          respondent was holding the refund that petitioners had requested.           
          Despite this warning, petitioners continued with their                      
          investment, and they took no steps to verify the legitimacy of              
          Mr. Hoyt’s organization, the Hoyt partnership, or the tax claims.           
               For the next year, 1987, Mr. Hoyt’s organization switched              
          petitioners from the partnership named in the IRS warning letter            
          to a different partnership.  As instructed by the Hoyt                      
          organization, petitioners also began reporting the bulk of the              
          Hoyt-related losses as losses from farming activities rather than           
          from partnerships.  For 1987, the claimed Hoyt-related losses               
          purportedly reduced petitioners’ tax liability to $462.                     
               Also in 1987, petitioners filed the Form 1045 on which they            
          claimed the carryback of the general business credit, purportedly           
          reducing their 1984 tax liability from $7,586 to $142, and their            
          1985 tax liability from $7,326 to $484.  By 1988, petitioners               
          were claiming the Hoyt losses entirely on Schedules F.  These               

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