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statements in connection with his promotion and operation of the
cattle partnerships. In his referral report to the CID, this
team member concluded that Hoyt was selling to some partnerships
cattle that had already been sold to other partnerships and that
he was depreciating cattle that did not exist. The CID then
conducted an investigation of the alleged nonexistent cattle and
Hoyt’s represented value for them.8 The CID conducted two other
investigations of Hoyt but did not recommend that Hoyt be
prosecuted.
With many cows and sheep spread over many facilities, the
IRS had difficulty proving that the partnerships were shams. On
October 19, 1989, the IRS suffered a major setback when this
Court filed its opinion Bales v. Commissioner, T.C. Memo.
1989-568, wherein this Court found that the Bales partnerships
had acquired the benefits and burdens of ownership with respect
to specific breeding cattle, that the purchase prices for the
partnership cattle did not exceed their fair market value, and
that the promissory notes the partnerships issued were valid
recourse indebtedness.
8On Oct. 13, 1989, during the CID’s above-mentioned
investigation, the U.S. Attorney’s Office in Sacramento requested
that the CID review certain information and determine whether IRS
special agents from the CID should join in an ongoing grand jury
investigation of Hoyt for possible violations of the internal
revenue laws. On Nov. 3, 1989, the IRS Regional Counsel’s Office
requested that IRS special agents be authorized to participate in
the grand jury investigation. On Oct. 2, 1990, the U.S.
Attorney’s Office ended the grand jury investigation of Hoyt
without an indictment.
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