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respondent’s assertions in the preceding letter were incorrect,
and that the investors should do what was necessary to
participate in their investment at least 100 or 500 hours per
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 petitioner 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
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