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F.3d 1136 (9th Cir. 2005); Mekulsia v. Commissioner, T.C. Memo.
2003-138, affd. 389 F.3d 601 (6th Cir. 2004); Durham Farms #1,
J.V. v. Commissioner, T.C. Memo. 2000-159, affd. 59 Fed. Appx.
952 (9th Cir. 2003); Shorthorn Genetic Engg. 1982-2, Ltd. v.
Commissioner, T.C. Memo. 1996-515; Bales v. Commissioner, T.C.
Memo. 1989-568. Moreover, it was a matter of public record when
respondent adopted his position that Mr. Hoyt had overstated the
number and value of cattle sold to the partnerships.11 See,
e.g., Mora v. Commissioner, supra at 292.
In King v. Commissioner, supra 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.” 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. Owen
11By Sept. 9, 2002, Mr. Hoyt had been indicted, convicted,
and sentenced for his fraudulent activities with respect to the
Hoyt partnerships.
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