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D. Fairness Considerations
Petitioner’s 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.
Petitioner argues that “The application of penalties in the
present case does not comport with the underlying purpose of
penalties.” To this effect, petitioner argues that, in this
case:
the problem was not Petitioner’s disregard of the tax laws,
but was Jay Hoyt’s fraud and deception. Petitioner did not
engage in noncompliant behavior, instead he was the victim
of a complex fraud that it took Respondent years to
completely unravel.
Petitioner made a good faith effort to comply with the tax
laws and punishing him 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 petitioner was a victim of Mr.
Hoyt’s fraudulent actions. Petitioner ultimately lost the bulk
of the tax savings that he received, which he had remitted to Mr.
Hoyt as part of his investment and which he never received back.
Nevertheless, petitioner believed that this money was being used
for his own personal benefit--at the time that he claimed the tax
savings, he believed that he would eventually benefit from them.
Petitioner also lost a substantial amount of out-of-pocket cash
which he paid to Mr. Hoyt in the years preceding and following
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