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Similarly, Hoyt knew that other farm deductions claimed on the
partnership returns for such items as feed, freight, gasoline,
insurance, rent of farm pasture, repairs, supplies, utilities,
veterinary fees, contract labor, and advertising expenses were
false and fraudulent because the partnership did not have the
livestock to require these expenses.
The interest deductions claimed on the partnership returns
were purportedly claimed with respect to the promissory note each
partnership issued in connection with the purported acquisition
of its breeding sheep. The interest deductions claimed on the
promissory notes were false and fraudulent because the promissory
notes the sheep partnerships issued for their breeding flocks
were not bona fide recourse debt. The notes had no economic
effect to the partnerships and were not valid indebtedness.
Finally, as this Court previously found in River City Ranches #4,
J.V. v. Commissioner, supra, the actions of the Barnes family and
Hoyt evidence that they themselves viewed the partnership notes
as essentially illusory and having no practical economic effect
and that the notes were merely a facade to support the tax
benefits that Hoyt had promised investors in the partnerships.
The guaranteed payments claimed on the partnership returns
purportedly pertain to payments made by the partnerships to Hoyt
as “sheep sales incentive”. However, since the partnerships
never acquired the benefits and burdens of its principal product,
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Last modified: November 10, 2007