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total amount of these payments exceeds $40,000. These payments
included the remittance of their tax refunds, the payment of
quarterly and monthly installments on their promissory notes,
special “assessments” imposed by the partnership, and
contributions to purported individual retirement account plans
maintained by the Hoyt organization. Petitioners continued
contributing to the partnership even after they stopped receiving
refunds from respondent. During and after the year in issue,
petitioners received numerous documents purporting to show both
the legitimacy of the Hoyt partnerships and the legality of the
tax claims being made by the Hoyt organization. The Hoyt
organization also portrayed employees of the IRS as incompetent
and claimed that they were engaging in unjust harassment of Hoyt
investors. Petitioners trusted these documents and believed and
relied upon what the Hoyt organization told them.
III. Petitioners’ Federal Tax Claims
On June 10, 1991, petitioners filed a joint Federal income
tax return for 1990, on which they reported the following:
Wage income $46,162
Interest income 29
Pension and annuity income 8,422
Loss from DSBS 87-C (148,390)
IRA contribution (2,000)
Adjusted gross income (95,777)
Tax liability 842
Overpayment 3,771
Upon filing their 1990 return, petitioners also filed a Form
1045, Application for Tentative Refund. On this form,
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