River City Ranches #1 Ltd., Jeffry Bergamyer, Tax Matters Partner - Page 8

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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