- 42 - 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,Page: Previous 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 NextLast modified: November 10, 2007