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The partners’ individual income tax returns were often
prepared first by the Hoyt Tax Office to claim partnership
deductions or credits sufficient to eliminate or substantially
reduce partners’ tax liabilities. Subsequently, the partnership
returns were prepared to reflect the amounts reported on the
partners’ individual income tax returns. The promotional
materials explained that, beginning in 1982, other members of the
Hoyt Tax Office would sign the individual partners’ tax returns
as preparers instead of Hoyt. The materials further stated that
the preparers would assist each partner in claiming all
nonpartnership tax deductions and credits available to the
partner before claiming any flowthrough deductions from the
partnership. If a partner needed more or less partnership loss
in any year, the Hoyt Tax Office arranged the increase quickly
without requiring the partner to pay a higher fee to an outside
return preparer. Hoyt routinely had the individual’s Federal
income tax returns prepared and filed claiming large partnership
losses before the Form 1065, U.S. Partnership Return of Income,
was prepared and filed. Sometimes this would result in an
inconsistency between the loss shown on an individual return and
the amount shown on the partner’s Schedule K-1, Partner’s Share
of Income, Credits, Deductions, Etc.
From 1981 through 1991, Hoyt formed eight of the nine sheep
partnerships at issue pursuant to the laws of California. RCR
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Last modified: November 10, 2007