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challenge by the Commissioner, no matter how illegitimate the
partnerships had become or how unreasonable the taxpayers were in
making investments therein and claiming the tax benefits that Mr.
Hoyt promised would ensue.
E. Fairness Considerations
Petitioners’ 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.
Petitioners argue that “The application of penalties in the
present case does not comport with the underlying purpose of
penalties.” To this effect, petitioners argue that, in this
case,
The problem was not Petitioners’ disregard of the tax laws,
but was Jay Hoyt’s fraud and deception. Petitioners did not
engage in noncompliant behavior, instead [they] were the
victims of a complex fraud that it took Respondent years to
completely unravel.
Petitioner Ron Van Scoten 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].
We are mindful of the fact that petitioners were victims of Mr.
Hoyt’s fraudulent actions. Petitioners ultimately lost the bulk
of the tax savings that they received, which they had remitted to
Mr. Hoyt as part of their investment. Nevertheless, petitioners
believed that this money was being used for their own personal
benefit--at the time that they claimed the tax savings, they
believed that they would eventually benefit from them. Mr.
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