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On his self-prepared returns for 1991, 1992, and 1993,
petitioner reported total taxes of $10,662, $9,035, and $21,043,
respectively. On his returns for 1994 and 1995, prepared by
Laguna, petitioner reported zero total tax despite having roughly
the same total income (not including Schedule F items) as in 1991
through 1993. The relative change in petitioner’s total tax was
attributable solely to the Schedule F deductions. Petitioner
realized these significant tax benefits and received refunds from
the net operating loss carrybacks while incurring no upfront
costs.
Before petitioner filed his 1995 return, respondent informed
petitioner that he had been identified as an investor in a tax
shelter and his Hoyt-related deductions would not be allowed.
Despite this warning, petitioner did not seek independent advice
but continued to rely on the assurances of Barnes, a Hoyt
employee. After he received the warning, petitioner still
claimed Schedule F deductions related to his Hoyt investment on
his 1995 return.
Other facts that should have put petitioner on notice of the
suspect tax claims include: (1) The promotional materials
petitioner received from Hoyt included warnings about significant
tax risks; and (2) petitioner testified that he was investing in
a partnership, yet he claimed purported losses as Schedule F
losses instead of partnership losses.
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