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making an investment. Nevertheless, petitioners did not
investigate the tax claims being made by the Hoyt organization
with anyone who was not involved with the organization.
When it came time to prepare petitioners’ tax returns and
claim the losses being reported by the Hoyt partnerships,
petitioners relied on the very people who were receiving the bulk
of the tax savings generated by the claims. Thus, the same
individuals who sold petitioners an interest in the Hoyt
partnerships and who ran the purported ranching operations also
prepared the partnerships’ tax returns, prepared petitioners’ tax
returns, and received from petitioners most of the tax savings
that resulted from the positions taken on petitioners’ returns.
When petitioners filed their 1991 return, Mr. Van Scoten did not
know, and there is no evidence that Ms. Van Scoten knew, how the
loss or other amounts were derived; he knew only that the Hoyt
organization had reported the amounts on petitioners’ tax return.
Petitioners claimed the loss despite the fact that respondent had
warned petitioners, as well Mr. Van Scoten’s father, that there
were potential problems with the tax claims being made on both
the partnership returns and on petitioners’ returns. Prior to
signing their 1991 return, petitioners had received at least two
separate letters from respondent alerting petitioners to
suspected problems or alerting petitioners to reviews that had
been commenced with respect to their partnership. Despite these
letters, petitioners did not further investigate the partnership
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