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1996-515; Bales v. Commissioner, T.C. Memo. 1989-568. Moreover,
it was a matter of public record when respondent adopted his
litigating position that Mr. Hoyt had overstated the number and
value of cattle sold to the partnerships.16 See, e.g., Mora v.
Commissioner, 117 T.C. 279, 292 (2001).
In King v. Commissioner, 116 T.C. at 204, we held that “the
proper application of the actual knowledge standard in section
6015(c)(3)(C), in the context of a disallowed deduction, requires
respondent to prove that petitioner had actual knowledge of the
factual circumstances which made the item unallowable as a
deduction.”17 In other words, respondent had to prove that
petitioner knew the Hoyt organization had an insufficient number
of cattle to sustain the partnership deductions claimed on the
joint return and knowingly claimed improper deductions. Nothing
in the record indicates, however, that respondent made any
reasonable effort to identify the grounds for the disallowance of
the Hoyt partnership losses and credits petitioner and Mr. Bulger
claimed, or to evaluate his ability to prove that petitioner had
actual knowledge of the factual circumstances that caused the
16By May 1, 2003, Mr. Hoyt had been indicted, convicted, and
sentenced for his fraudulent activities with respect to the Hoyt
partnerships.
17In our Opinion in Mora v. Commissioner, 117 T.C. 279
(2001), which we filed on Dec. 17, 2001, we rejected the
Commissioner’s argument that the actual knowledge standard
articulated in King v. Commissioner, 116 T.C. 198 (2001), should
not apply to investors in Hoyt limited partnership cases.
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