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unreasonable to expect that facts in an example be identical to
facts of a particular case before the example can be relied upon.
The IRM example was only one of many factors respondent
considered. Given the similarities to petitioners’ case,
respondent’s reliance on that example was not arbitrary or
capricious.
3. Petitioners’ Other “Equitable Facts”
Petitioners argue that respondent abused his discretion by
failing to consider the other “equitable facts” of this case.
Petitioners’ “equitable facts” include reference to: (1)
Petitioners’ reliance on Bales v. Commissioner, T.C. Memo. 1989-
568;18 (2) petitioners’ reliance on Hoyt’s enrolled agent status;
(3) Hoyt’s criminal conviction; (4) Hoyt’s fraud on petitioners;
and (5) other letters and cases. The basic thrust of
petitioners’ argument is that they were defrauded by Hoyt and
that, if they were held responsible for penalties and interest
18 Bales v. Commissioner, T.C. Memo. 1989-568, involved
deficiencies determined against various investors in several Hoyt
partnerships. This Court found in favor of the investors on
several issues, stating that “the transaction in issue should be
respected for Federal income tax purposes.” Taxpayers in many
Hoyt-related cases have used Bales as the basis for a reasonable
cause defense to accuracy-related penalties. This argument has
been uniformly rejected by this Court and by the Courts of
Appeals for the Sixth, Ninth, and Tenth Circuits. See, e.g.,
Hansen v. Commissioner, 471 F.3d 1021 (9th Cir. 2006), affg. T.C.
Memo. 2004-269; Mortensen v. Commissioner, 440 F.3d 375, 390-391
(6th Cir. 2006), affg. T.C. Memo. 2004-279; Van Scoten v.
Commissioner, 439 F.3d 1243, 1254-1256 (10th Cir. 2006), affg.
T.C. Memo. 2004-275.
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