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petitioners claimed a net operating loss (NOL) carryback from
1990 in the amount of $102,228. Petitioners reported the
following after application of the carryback to the respective
taxable years:
1987 1988 1989
AGI on return $49,726 $38,967 $40,889
Tax liability on return 5,949 3,529 3,549
Corrected tax liability -0- -0- -0-
Overpayment 5,949 3,529 3,549
The 1990 return and the Form 1045 were prepared by individuals
affiliated with the Hoyt organization. The refund and tentative
refunds requested by petitioners with respect to the 1990 return
and the carryback years totaled $16,798. Petitioners remitted
two payments to the Hoyt organization during 1991 in the form of
two cashier’s checks dated May 8, 1991, and August 20, 1991, in
the respective amounts of $7,000 and $9,750.
In January 1992, prior to the time petitioners signed their
1991 return, respondent mailed Hoyt investors, including
petitioners, a letter regarding the application of section 469
(relating to passive activity loss limitations). That same
month, Mr. Hoyt mailed a letter to investors, including
petitioners, setting forth arguments that Hoyt investors
materially participated in their investments within the meaning
of section 469. In this letter, Mr. Hoyt stated that
respondent’s assertions in the preceding letter were incorrect,
and that the investors should do what was necessary to
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