River City Ranches #1 Ltd., Jeffry Bergamyer, Tax Matters Partner - Page 35




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          extensions of the limitations period for the partnerships unless            
          the IRS delayed assessing the preparer penalty until the FPAAs              
          were issued also indicated that Hoyt was allowing his personal              
          interests to interfere with his fiduciary duty to the                       
          partnerships.                                                               
               As early as mid-1989, the IRS suspected that Hoyt had not              
          purchased the sheep reportedly owned by the partnerships, in                
          breach of his fiduciary duty to the partnerships.  By February              
          1993, the ongoing inspection and livestock count confirmed                  
          respondent’s suspicion that Hoyt had greatly overstated the                 
          number of breeding animals the partnerships claimed to own and              
          had grossly overvalued the livestock upon which the partnerships            
          were claiming tax benefits.  By February 1993, as a result of the           
          count and inspection, respondent possessed sufficient evidence to           
          support the issuance of prefiling notices and freezing tax                  
          refunds claimed by partners.  Beginning in February 1993,                   
          respondent generally froze and stopped issuing income tax refunds           
          to partners in the cattle and sheep partnerships and issued                 
          prefiling notices to the investor-partners advising them that,              
          starting with the 1992 taxable year, the IRS would:  (1) Disallow           
          the tax benefits that the partners claimed on their individual              
          returns from the cattle and sheep partnerships; and (2) not issue           
          any tax refunds these partners might claim attributable to such             
          partnership tax benefits.  Respondent did not directly inform the           







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