Eugene A. Sanders - Page 7

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          share of Durham’s ordinary loss.  Attached to the Schedule K-1              
          was a Form 8271, Investor Reporting of Tax Shelter Registration             
          Number, which identified Durham as a tax shelter.  On a Schedule            
          E attached to his 1990 return, petitioner reported a partnership            
          loss of $175,560.                                                           
               During July 1991, petitioner traveled to Burns, Oregon, to             
          tour several Hoyt ranches.  Petitioner did not review any Hoyt              
          records during his 4-day visit.  During his visit to the Hoyt               
          ranches, petitioner saw “just a handful” of cattle.  Petitioner             
          was unable to determine which cattle, if any, were specifically             
          owned by Durham.                                                            
               On February 3, 1992, respondent sent to petitioner an NBAP             
          which notified petitioner that Durham’s 1990 taxable year was               
          under examination.                                                          
               On February 11, 1992, Revenue Agent Norm Johnson sent                  
          petitioner a letter.  The letter noted, in part, that in prior              
          correspondence sent by Mr. Hoyt in January 1992 to petitioner and           
          other Hoyt investors, “misleading and/or inaccurate premises were           
          made which may directly affect you and your decision-making                 
          process in filing your 1991 individual tax return.”8  The revenue           
          agent’s letter further stated that if petitioner was confused by,           
          or questioned the accuracy of, the information provided by                  

               8  Mr. Hoyt’s letter to the Hoyt investors addressed                   
          arguments with respect to material participation under sec. 469.            

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