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i.e., registered sheep, it follows that the deductions claimed
for guaranteed payments were false and fraudulent.
When the partnership returns were filed claiming the false
and fraudulent deductions, Hoyt was an enrolled agent before the
IRS. He was a sophisticated person preparing the partnership
returns who had demonstrated by obtaining his enrolled agent
status that he was aware of the return filing requirements and
the necessity of maintaining proper books and records.
Through participation in the Hoyt partnerships, the partners
received the benefits of the false and fraudulent partnership
deductions. A partnership is required to file an annual
information tax return even though it is not a taxable entity for
Federal income tax purposes. Secs. 701, 6031; sec. 1.701-1,
Income Tax Regs. Each partner is liable for income tax in his or
her individual capacity with respect to his or her share of
partnership items of income, loss, deduction, and credit. Sec.
701; sec. 1.702-1, Income Tax Regs. Thus, through such
participation in the Hoyt partnerships, each partner received
flowthrough partnership deductions that were false and fraudulent
and which reduced or eliminated the partner’s tax liability.
The falsity of the partnership deductions and Hoyt’s intent
to evade tax is further supported by the manner in which the
partners “purchased” their partnership interests and the focus of
the promotional materials. The partnership interest and the
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Last modified: November 10, 2007