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investor-partners 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 until the Examination Division issued
warning letters to all the partners on December 30, 1993 (shortly
after the FPAAs were issued).
“Trust law, generally, invalidates the transaction of a
trustee who is breaching his trust in a transaction in which the
other party is aware of the breach.” Phillips v. Commissioner,
supra at 1175. By February 1993, respondent knew that “Hoyt had
been taking money for non-existent cows and sheep--for which Hoyt
presumably knew he was vulnerable to criminal prosecution.”
River City Ranches #1 Ltd. v. Commissioner, 401 F.3d at 1142.
It was in the partners’ interest for the FPAAs to be issued
sooner rather than later because the FPAAs provided the partners
a strong indication that Hoyt was looting the partnerships and
that the partners had in fact claimed tax benefits to which they
were not entitled. Delay would perpetuate Hoyt’s concealment of
his theft and result in greater penalties and interest when the
taxes were collected.
By contrast, extending the limitations periods within which
respondent could issue the FPAAs was in Hoyt’s interest because
it delayed discovery of his theft. Hoyt’s interests ran toward
delaying as long as possible any threat to the house of cards he
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