DocketNumber： No. 787-91, 4876-94, 9550-94, 9552-94, 9554-94, 13595-94, 13597-94, 13599-94, 13599-94, 382-95
Citation Numbers： 2003 T.C. Memo. 150, 85 T.C.M. 1365, 2003 Tax Ct. Memo LEXIS 147
Judges： \"Dawson, Howard A.\"
Filed Date： 5/23/2003
Status： Non-Precedential
Modified Date： 4/18/2021
*147 Petitioners' deductions disallowed. Respondent's motion for partial summary judgment moot.
APPENDIX
Docket No. Partnership and Tax Matters Partner
__________ ___________________________________
787-91 River City Ranches #1 Ltd., Leon Shepard,
Tax Matters Partner
River City Ranches #2 Ltd., Leon Shepard,
Tax Matters Partner
River City Ranches #3 Ltd., Leon Shepard,
Tax Matters Partner
River City Ranches #4 Ltd., Leon Shepard,
Tax Matters Partner
River City Ranches #5 Ltd., Leon Shepard,
Tax Matters Partner
River City Ranches #6 Ltd., Leon Shepard,
Tax Matters Partner
4876-94 *148 River City Ranches #2, J.V., David Britton,
Tax Matters Partner
9550-94 River City Ranches #3, J.V., Michael Dale,
Tax Matters Partner
9552-94 River City Ranches #5, J.V., Stephen Hughes,
Tax Matters Partner
9554-94 River City Ranches 1985-2, J.V.,* Jeffry Bergamyer,
Tax Matters Partner
13595-94 River City Ranches #3, J.V., Michael Dale,
Tax Matters Partner
13597-94 River City Ranches #5, J.V., Stephen Hughes,
Tax Matters Partner
13599-94 River City Ranches 1985-2, J.V.,* Jeffry Bergamyer,
Tax Matters Partner
382-95 Ovine Genetic Technology Syndicate 1987-1, J.V.,
*149 Linda Routzahn, Tax Matters Partner
383-95 River City Ranches 1985-2, J.V.,* Jeffry Bergamyer,
Tax Matters Partner
385-95 River City Ranches #3, J.V., Michael Dale,
Tax Matters Partner
386-95 River City Ranches #5, J.V., Stephen Hughes,
Tax Matters Partner
14718-95 River City Ranches #1, J.V., Stephen Hughes,
Tax Matters Partner
14719-95 River City Ranches #2, J.V., David Britton,
Tax Matters Partner
14720-95 River City Ranches #3, J.V., Michael Dale,
Tax Matters Partner
14722-95 River City Ranches #5, J.V., Stephen Hughes,
Tax Matters Partner
14724-95 River City Ranches #7, J. *150 V.,* Jeffry Bergamyer,
Tax Matters Partner
21461-95 Ovine Genetic Technology Syndicate 1987-1, J.V.,
Linda Routzahn, Tax Matters Partner
5196-96 Ovine Genetic Technology Syndicate 1987-1, J.V.,
Linda Routzahn, Tax Matters Partner
5197-96 Ovine Genetic Technology 1990, J.V., Leon Shepard,
Tax Matters Partner
5198-96 River City Ranches #1, J.V., Stephen Hughes,
Tax Matters Partner
5238-96 River City Ranches #4, J.V., Leon Shepard,
Tax Matters Partner
5239-96 River City Ranches #7, J.V.,* Jeffry Bergamyer,
Tax Matters Partner
5240-96 River City Ranches #5, J.V., Stephen Hughes,
*151 Tax Matters Partner
5241-96 River City Ranches #6, J.V., Joseph Sotro, Sr.,
Tax Matters Partner
9779-96 River City Ranches #4, J.V., Leon Shepard,
Tax Matters Partner
9780-96 River City Ranches #5, J.V., Stephen Hughes,
Tax Matters Partner
9781-96 River City Ranches #6, J.V., Joseph Sotro, Sr.,
Tax Matters Partner
14038-96 River City Ranches #4, J.V., Leon Shepard,
Tax Matters Partner
21774-96 Ovine Genetic Technology 1990, J.V., Leon Shepard,
Tax Matters Partner
3304-97 River City Ranches #3, J.V., Michael Dale,
Tax Matters Partner
3305-97 River City Ranches #2, J.V., David*152 Britton,
Tax Matters Partner
3306-97 River City Ranches #1, J.V., Stephen Hughes,
Tax Matters Partner
3311-97 Ovine Genetic Technology Syndicate 1987-1, J.V.,
Linda Routzahn, Tax Matters Partner
3749-97 River City Ranches #7, J.V.,* Jeffry Bergamyer,
Tax Matters Partner
15747-98 Ovine Genetic Technology Syndicate 1987-1, J.V.,
Linda Routzahn, Tax Matters Partner
15748-98 River City Ranches #1, J.V., Stephen Hughes,
Tax Matters Partner
15749-98 River City Ranches #3, J.V., Michael Dale,
Tax Matters Partner
15750-98 River City Ranches #2, J.V., David Britton,
Tax Matters*153 Partner
15751-98 River City Ranches #4, J.V., Leon Shepard,
Tax Matters Partner
15752-98 River City Ranches #5, J.V., Stephen Hughes,
Tax Matters Partner
15753-98 River City Ranches #6, J.V., Joseph Sotro, Sr.,
Tax Matters Partner
15754-98 River City Ranches #7, J.V.,* Jeffry Bergamyer,
Tax Matters Partner
19106-98 Ovine Genetic Technology 1990, J.V., Leon Shepard,
Tax Matters Partner
13250-99 Ovine Genetic Technology Syndicate 1987-1, J.V.,
Linda Routzahn, Tax Matters Partner
13251-99 Ovine Genetic Technology 1990, J.V., Leon Shepard,
Tax Matters Partner
13256-99 River City Ranches #1, J.V., Stephen*154 Hughes,
Tax Matters Partner
13257-99 River City Ranches #2, J.V., David Britton,
Tax Matters Partner
13258-99 River City Ranches #3, J.V., Michael Dale,
Tax Matters Partner
13259-99 River City Ranches #4, J.V., Leon Shepard,
Tax Matters Partner
13260-99 River City Ranches #5, J.V., Stephen Hughes,
Tax Matters Partner
13261-99 River City Ranches #6, J.V., Joseph Sotro, Sr.,
Tax Matters Partner
13262-99 River City Ranches #7, J.V.,* Jeffry Bergamyer,
Tax Matters Partner
16557-99 River City Ranches #1, J.V., Stephen Hughes,
Tax Matters Partner
16563-99 *155 Ovine Genetic Technology Syndicate 1987-1, J.V.,
Linda Routzahn, Tax Matters Partner
16568-99 River City Ranches #5, J.V., Stephen Hughes,
Tax Matters Partner
16570-99 River City Ranches #3, J.V., Michael Dale,
Tax Matters Partner
16572-99 River City Ranches #4, J.V., Leon Shepard,
Tax Matters Partner
16574-99 River City Ranches #2, J.V., David Britton,
Tax Matters Partner
16578-99 River City Ranches #7, J.V.,* Jeffry Bergamyer,
Tax Matters Partner
16581-99 River City Ranches #6, J.V., Joseph Sotro, Sr.,
Tax Matters Partner
17125-99 Ovine Genetic Technology 1990, J.V., Leon Shepard,
*156 Tax Matters Partner
Docket Nos. 787-91, 4876-94, 9550-94, 9552-94, 9554-94, 13595-94, 13597-94, 13599-94, 382-95, 383-95, 385-95, 386-95, 14718-95, 14719- 95, 14720-95, 14722-95, 14724-95, 21461-95, 5196-96, 5197-96, 5198- 96, 5238-96, 5239-96, 5240-96, 5241-96, 9779-96, 9780-96, 9781-96, 14038-96, 21774-96, 3304-97, 3305-97, 3306-97, 3311-97, 3749-97, 15747-98, 15748-98, 15749-98, 15750-98, 15751-98, 15752-98, 15753-98, 15754-98, 19106-98, 13250-99, 13251-99, 13256-99, 13257-99, 13258-99, 13259-99, 13260-99, 13261-99, 13262-99, 16557-99, 16563-99, 16568-99, 16570-99, 16572-99, 16574-99, 16578-99, 16581-99, 17125-99.
Terri Ann Merriam and Wendy S. Pearson, for participating partners in docket Nos. 9554-94, 13599-94, 383-95, and 16578-99.
DAWSON, Judge: These consolidated cases were assigned to Special Trial Judge Stanley J. Goldberg, pursuant to
GOLDBERG, Special Trial Judge: Respondent issued a notice of final partnership administrative adjustment (FPAA) to each partnership involved in these consolidated cases determining adjustments for the taxable years at issue. 2 From 1981 through 1998, Walter J. Hoyt III (Jay Hoyt) promoted these nine sheep breeding partnerships to numerous investors and managed partnership operations. For convenience, these partnerships are hereinafter sometimes referred to as the Hoyt sheep partnerships and these consolidated cases are referred to in the singular (i. e., instant case). In addition, the individual partners in the sheep partnerships are collectively referred to as sheep partners.
*158 On June 22, 1999, the Court issued its opinion in River City Ranches #4,
After concessions, 4 the primary issues for decision in the instant cases (which petitioners raised in amended petitions) are: (1) Whether the nine Hoyt sheep partnerships are entitled to theft loss deductions under
Some of the facts*160 and certain documents have been stipulated for trial pursuant to
The parties have stipulated that at the time the respective petitions herein were filed, each of the nine Hoyt sheep partnerships maintained its principal place of business in Burns, Oregon. However, the record reflects that the partnerships were operated from a Hoyt organization office located in Elk Grove, California. Further, each sheep partnership, with the exception of River City Ranches 85-2, was formed under and governed by California law. River City Ranches 85-2 was a Nevada general partnership and in 1991 became known as River City Ranches #7 (RCR #7).
Jay Hoyt's father was a prominent breeder of Shorthorn cattle, one of the three major breeds of cattle in the United States. In order to expand his business and attract investors, the father had started organizing and promoting cattle breeding partnerships by the late 1960s. Before and after the father's death in early 1972, Jay Hoyt and other members of the Hoyt family were extensively involved in organizing and*161 operating numerous cattle breeding partnerships. From about 1971 through 1998, Jay Hoyt organized, promoted to thousands of investors, and operated as a general partner more than 100 cattle breeding partnerships. For convenience, all or some of the cattle breeding partnerships hereinafter are sometimes referred to as the Hoyt cattle partnerships or cattle partnerships. 5
Before 1971, the Hoyt family for many years resided in Sacramento, California, and conducted most of their cattle operations in northern California. In 1975, the family started relocating their cattle operations to Burns, Oregon, because land prices became too expensive in northern California. By the 1980s, the Hoyt family resided in the Burns area, and the Hoyt organization maintained offices in Burns, Oregon, and Elk Grove, California.
*162 Around 1978 or 1979, Jay Hoyt became interested in the possibility of organizing sheep breeding partnerships similar to the cattle breeding partnerships. Due to this interest, Jay Hoyt began discussions with David Barnes, a longtime sheep breeder and childhood friend.
David Barnes and his wife April Barnes owned and operated Barnes Ranch, their sole proprietorship sheep breeding business located in California's Sacramento Valley. The Barnes' son, Randy Barnes, eventually took on a substantial role in the management and operation of the family sheep business after completing college in 1985.
David Barnes had extensive experience in breeding several breeds of purebred sheep. However, by the 1980s, he concentrated on Rambouillets and Suffolks. Rambouillets have white faces and cream colored bodies and are a breed noted for producing good quality wool. Suffolks, on the other hand, have black faces and legs and cream colored bodies and are a breed noted for producing good quality meat. By the late 1980s, David Barnes and Randy Barnes had acquired very good reputations in purebred sheep breeding circles and generally were considered to be among the country's top breeders of Rambouillets*163 and Suffolks.
As a result of various discussions and negotiations with David Barnes, Jay Hoyt decided to form, operate, and promote sheep partnerships in a very similar manner as the Hoyt cattle partnerships.
From 1981 through 1991, Jay Hoyt formed eight of the nine sheep partnerships at issue under and pursuant to the laws of California. RCR #7 was formed under and pursuant to the laws of Nevada. From their inception, all nine sheep partnerships were operated from the Hoyt office located in Elk Grove, California.
The Certificate and Articles of Limited Partnership of River City Ranches Ltd. (RCR #1) states that the partnership was formed in 1981 as a limited partnership under and pursuant to the laws of the State of California. Jay Hoyt was designated the general partner, and the individual investors were collectively designated the limited partners.
The Certificate and Articles of Limited Partnership of River City Ranches #2 Ltd. (RCR #2) states that the partnership was formed in 1982 as a limited partnership under and pursuant to the laws of the State of California. Jay Hoyt was designated the general partner, and the*164 individual investors were collectively designated the limited partners.
The Certificate of Limited Partnership of River City Ranches #3 Ltd. (RCR #3) states that the partnership was formed in 1983 as a limited partnership prepared and recorded under
The Certificate and Articles of Limited Partnership of River City Ranches #4 Ltd. (RCR #4) states that the partnership was formed in 1984 as a limited partnership under and pursuant to the laws of the State of California. Jay Hoyt was designated the general partner, and the individual investors were collectively designated the limited partners.
The Partnership Agreement of River City Ranches #5 Ltd. (RCR #5) states that the partnership was formed in 1985 as a general partnership under the laws of the State of California pursuant to the provisions of the
The Partnership Agreement of River City Ranches #6 Ltd. (RCR #6) states that the partnership was formed in 1986 as a general partnership under the laws of the State of California pursuant to the provisions of the
The Partnership Agreement of Ovine Genetic Technology Syndicate 1987-1, J.V. (OGT 87) states that the partnership was formed in 1987 as a general partnership under the laws of the State of California pursuant to the provisions of*166 the
The record does not contain any partnership agreements for RCR #7 or Ovine Genetic Technology 1990 (OGT 90). However, other documents in the record indicate that RCR #7 is a Nevada general partnership governed by the
From the time each Hoyt sheep partnership was formed through 1998, Jay Hoyt was the general partner responsible for all the management, operation, and promotion functions. He maintained power of attorney to manage and conduct partnership business. Jay Hoyt oversaw the entire Hoyt operation and made all major decisions.
Jay Hoyt was also the tax matters partner (TMP) of each partnership*167 and was a licensed enrolled agent. As an enrolled agent he represented many of the investor-partners before the Internal Revenue Service (IRS). In 1997, the IRS disbarred Jay Hoyt as an enrolled agent for certain alleged improprieties relating to his individual income tax returns. By orders of the Tax Court issued from June 22, 2000, through May 15, 2001, Jay Hoyt was removed as TMP from the sheep partnerships.
From April 1981 through February 1987, Jay Hoyt, representing each of the Hoyt sheep partnerships (excluding OGT 90) 6, entered into agreements with David Barnes to purchase 6 Rambouillet and Suffolk breeding ewes from Barnes Ranch for each of the partnerships. The separate agreements that each partnership entered into with Barnes Ranch were substantially similar in all material respects. Each agreement contained terms for the partnerships to purchase the sheep with no money down by each issuing Barnes Ranch a promissory note. The partners of each partnership then personally assumed the partnership debt under an assumption agreement. Further, each partnership entered into a share-crop operating agreement with Barnes Ranch to manage and pay all expenses with respect to each*168 partnership's breeding sheep.
The dates on which the purchase agreements each of the eight partnerships and Barnes Ranch entered into, the number of purported breeding ewes each partnership allegedly acquired, the total stated purchase price, and the average price per sheep each partnership agreed to pay for its sheep are as follows:
_______________________________________________________________
Total
Date of Number Purchase Avg. Price
Partnership Entry*169 of Ewes Price per Sheep
_______________________________________________________________
RCR #1 4-20-81 401 $ 455,100 $ 1,135
RCR #2 2-15-82 514 626,400 1,219
RCR #3 3-20-83 584 713,140 1,221
RCR #4 2-01-84 1,468 2,087,880 1,422
RCR #5 5-01-85 1,257 1,825,000 1,452
RCR #6 1-15-86 1,415 1,960,140 1,385
RCR #7 2-01-87 1,873 3,982,360 2,126
OGT 87 1-05-87 1,849 3,636,600 1,967
_______________________________________________________________
Each of the nine sheep partnerships at issue was supposedly formed to operate as a sheep breeding partnership, owning its own flock of sheep purchased from Barnes Ranch. However, Jay Hoyt and David Barnes were not independent parties acting at arm's length with respect to any of the sheep agreements. In actuality, none of the sheep partnerships acquired the benefits and burdens of ownership of any of the sheep listed*170 above.
The bills of sale that Barnes Ranch issued the sheep partnerships (excluding OGT 90) listed large numbers of individual breeding sheep that did not exist. The flock recap sheets prepared by Jay Hoyt contained false information and did not represent the sheep purportedly owned by each partnership. Further, the total purchase price that each partnership agreed to pay for its sheep was many times the fair market value of similar quality sheep. Additionally, it was determined that none of the promissory notes that the sheep partnerships issued for their sheep were bona fide recourse debt. The notes had no economic effect to the partnerships and were not valid indebtedness. Moreover, Barnes Ranch did not even provide the partnerships with the management services required under the agreements.
The cattle and sheep partnerships were organized and operated in essentially the same manner. In addition, all of the Hoyt organization investor partnerships were marketed and promoted in an identical fashion. Jay Hoyt even used the promotional literature prepared for the cattle partnerships to promote the sheep partnerships. Some of the investors placed in the sheep partnerships believed*171 they had invested in cattle partnerships.
In the early 1980s with the formation of many more investor partnerships, the documents, records, and tax returns the Hoyt organization prepared relating to its transactions with the cattle partnerships were inaccurate, unreliable, and in many instances falsified. Likewise, the Hoyt organization prepared and maintained the sheep partnerships' documents, records, and tax returns in an inaccurate and unreliable manner. These deficient record-keeping practices continued for both the cattle and sheep partnerships through 1998, when all the investor partnerships were consolidated for bankruptcy purposes. For the years at issue, often no records were kept at all.
As the general partner managing each sheep partnership, Jay Hoyt was responsible for and directed the preparation of the tax returns of each partnership, and he typically signed and filed each tax return. However, separate bookkeeping and accounting records for each of the sheep partnerships were never maintained.
Nor did Jay Hoyt maintain separate bank accounts for each of the sheep partnerships. From 1981 until sometime in 1990, checks from the sheep partners were received at the Hoyt*172 office in Elk Grove, California, and deposited in one checking account. The account was in the name of River City Ranches (RCR account) and maintained at the Bank of Alex Brown located in Elk Grove, California. 7
Sometime in 1990, Jay Hoyt discontinued using the RCR account. He implemented a new business practice of commingling all Hoyt organization funds in one checking account referred to as the pooling account. This account was in the name of W. J. Hoyt Sons Ranches MLP (MLP) and maintained at the First Interstate Bank in Elk Grove, California. The funds in the pooling account were then allocated to the various Hoyt entities based on a percentage determined by a pooling committee administered by Jay Hoyt. The duration of the pooling account cannot be determined by the record. During the years at issue, substantial sums were deposited into and withdrawn by check from both the RCR account and the pooling account.
At the end of 1993 or early*173 1994, the sheep partnerships' promissory notes and share-crop management agreements were assigned to MLP. From that point on, MLP was responsible for providing the various functions that were previously the responsibility of Barnes Ranch.
Since approximately 1980, the IRS regularly examined many of the partnership returns of the Hoyt cattle partnerships and the individual returns of their partners. The IRS also examined the sheep partnerships' returns and the individual returns of their partners. Because Jay Hoyt did not maintain separate bank accounts and accurate accounting records for each of the sheep partnerships, the IRS audited the partnership tax returns as a group. The IRS generally disallowed the partnership tax benefits that each cattle and sheep partnership and their respective partners claimed, resulting in those partnerships and partners commencing numerous cases in the Tax Court.
The Tax Court litigation over the years concerning the Hoyt cattle and sheep partnerships includes: (1)
From 1984 through 2000, the IRS's tax enforcement efforts with respect to the tax shelter program operated by Jay Hoyt included: (1) Examinations of the returns of the cattle and sheep partnerships and their partners; (2) disallowance of the partnership tax benefits that were claimed; (3) issuance of prefiling notices to partners and freezing tax refunds they claimed; and (4) defending litigation commenced in the Tax Court by partnerships and partners over the adjustments determined in the FPAAs and notices of deficiency*175 issued by respondent.
From the IRS examinations of the returns of all the cattle and sheep partnerships and investor-partners through this Tax Court litigation, IRS personnel either strongly suspected or believed these partnerships to be abusive tax shelters. The IRS's original position had been that the purported acquisitions of breeding animals by the cattle and sheep partnerships lacked economic substance (i.e., were economic shams), that the partnerships' stated purchase prices for the animals greatly exceeded the fair market value of the animals, and that the promissory note each partnership issued in connection with its purported acquisition of breeding animals was not a valid indebtedness.
The holding in
The Examination Division examined many of the returns of the cattle and sheep partnerships and their partners for the 1980 through 1986 taxable years. During the Bales litigation, the Examination Division obtained extensions from the partners in the cattle partnerships to extend the period of limitations for assessing and collecting income tax liabilities for the 1980, 1981, and 1982 tax years. 8 After obtaining the extensions, the Examination Division temporarily suspended examination activity with respect to those tax years.
*177 In early 1989, the Examination Division resumed examining and processing the individual returns filed by partners in the cattle partnerships for the 1980, 1981, and 1982 tax years. Shortly thereafter, standard revenue agent reports for those years were prepared that proposed to disallow all tax benefits these partners had claimed from the cattle partnerships.
From about 1988 through 1991, an Examination Division team conducted partnership-level examinations of many of the returns of the cattle and sheep partnerships for the 1983 through 1986 taxable years. 9 During these examinations, Jay Hoyt and the Hoyt organization failed to provide adequate documents and records substantiating the livestock the partnerships purportedly acquired and owned.
Following the 1989 Bales opinion, the IRS attempted to verify the existence of all purported livestock that the cattle and sheep*178 partnerships allegedly owned for post-1979 taxable years. As a result of an administrative summons enforcement action brought in the United States District Court for the District of Oregon (U.S. District Court) in 1992, the IRS first inspected and counted all the purported cattle and sheep that these partnerships allegedly owned from fall 1992 through spring 1993. The livestock count and inspection were conducted in connection with the IRS's examinations of the post-1986 taxable year returns of the partnerships.
By February 1993, although the IRS's inspection and livestock count were not fully completed, IRS personnel concluded that Jay Hoyt and the Hoyt organization had greatly overstated the number of actual breeding animals that these partnerships claimed to own. The IRS further concluded that Jay Hoyt and the Hoyt organization had also grossly overvalued the livestock upon which the partnerships were claiming tax benefits.
Based on the above conclusions from its count of the cattle and sheep, the IRS, beginning in February 1993, generally froze and stopped issuing income tax refunds to partners in the cattle and sheep partnerships. The IRS issued prefiling notices to the investor-partners*179 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. 10
Respondent eventually issued: (1) Notices of deficiency to numerous investor-partners for the 1980, 1981, and 1982 tax years, in which respondent determined that none of the tax benefits the partners claimed from the cattle and sheep partnerships were allowable; and (2) FPAAs to many of the cattle and sheep partnerships for the taxable years 1983, 1984, 1985, and 1986, in which respondent*180 disallowed the tax benefits these partnerships claimed.
Following the IRS's freezing in February 1993 of tax refunds to partners in the cattle and sheep partnerships, the Hoyt organization experienced financial difficulties. Freezing the tax refunds greatly diminished the amount of money the Hoyt organization obtained from new and existing partners.
After the opinion in Bales was filed and appropriate decisions were entered, settlement negotiations were conducted between Jay Hoyt and the IRS, which culminated in the MOU.
Beginning in 1993, an increasing number of investor- partners were becoming disgruntled with Jay Hoyt and the Hoyt organization. Many partners stopped making their partnership payments and withdrew from their partnerships, due in part to respondent's tax enforcement. Jay Hoyt urged the partners to support and remain loyal to the organization in challenging the IRS's actions. The Hoyt organization warned that partners who stopped making their partnership payments and withdrew from their partnerships (1) would be reported to the IRS as having substantial debt relief income and (2) would have to deal with the IRS on their own.
On or about June 8, 1995, in the 32d*181 Judicial District Court for the Parish of Terrebonne, State of Louisiana, a group of investors obtained an $ 11 million default judgment against Jay Hoyt, Management, MLP, and several cattle breeding partnerships for fraud and other violations. See Mabile, et al. v. Walter J. Hoyt, III, et al., No. 95-112222. On February 24, 1997, the plaintiffs in the Louisiana lawsuit filed involuntary bankruptcy petitions in the U.S. Bankruptcy Court for the District of Oregon (Bankruptcy Court) to force Management and MLP into bankruptcy and liquidate each company's assets. On June 5, 1997, the Bankruptcy Court entered an order for relief, in effect finding that Management and MLP were both bankrupt.
In the Management and the MLP bankruptcy cases, the United States Trustee (U.S. Trustee), in 1997, moved to have the Bankruptcy Court substantively consolidate all assets and liabilities of almost all Hoyt organization entities and the many Hoyt investor partnerships. This consolidation included all the cattle and sheep partnerships. On November 13, 1998, the Bankruptcy Court entered its Judgment for Substantive Consolidation, consolidating all the above mentioned entities for bankruptcy purposes. *182 The U.S. Trustee then sold off what little livestock that the Hoyt organization owned and/ or managed on behalf of the cattle and sheep partnerships.
From 1992 through 1998, the IRS at various times issued standard letters to investor-partners advising them of the IRS's position in disputing the claimed tax benefits from the cattle and sheep partnerships. From 1992 through 1998, Revenue Agent Norman Johnson and other IRS employees discussed the IRS's position with hundreds of investor-partners in the cattle and sheep partnerships. Many of the discussions addressed the confusion various partners had regarding certain tax issues as a result of the conflicting information and tax advice that Jay Hoyt and the Hoyt organization provided the investor-partners.
Respondent ultimately issued FPAAs to the cattle and sheep partnerships for post-1986 taxable years, in which respondent disallowed the tax benefits these partnerships claimed for those years. These partnerships then commenced numerous Tax Court cases for a redetermination of the FPAA adjustments.
On June 22, 1999, this Court issued its opinion in River City Ranches #4,
After the initial IRS examinations of the many cattle and sheep partnerships, several investigations by various Government agencies were commenced relating to Jay Hoyt's activities.
From 1984 through 1986, the IRS's Criminal Investigation Division (CID) conducted an investigation of Jay Hoyt for allegedly backdating documents to enable 12 investor-partners to claim improper deductions and credits for 1980, 1981, and 1982. On July 31, 1986, the IRS District Counsel's Office in Sacramento, California, referred the matter to the Department of Justice (DOJ) for prosecution.
The DOJ then forwarded the matter to the U.S. Attorney's Office in*184 Sacramento for review and consideration. On August 12, 1987, the U.S. Attorney's Office declined to prosecute Jay Hoyt. The Assistant U.S. Attorney assigned to consider the possible criminal tax prosecution concluded that: (1) The total tax loss to the Government from the backdating was relatively small, probably less than $ 30,000; and (2) it would be difficult to obtain a conviction of Jay Hoyt in a jury trial.
In July 1989, a member of the IRS Examination Division team (which had been examining the returns of many of the cattle and sheep partnerships for the 1983 through 1986 taxable years) recommended that the CID investigate Jay Hoyt for allegedly making and/ or assisting in fraudulent or false tax return statements in connection with his promotion and operation of the cattle partnerships. In his referral report to the CID, this team member concluded that Jay Hoyt was selling cattle to some partnerships that had already been sold to other partnerships and that he was depreciating cattle that did not exist. The CID then conducted an investigation of the alleged nonexistent cattle and Jay Hoyt's represented value for them. CID's investigation was completed no later than October 1, 1990.
*185 On October 13, 1989, during the CID's above-mentioned investigation, the U.S. Attorney's Office in Sacramento requested that the CID review certain information and determine whether IRS special agents from the CID should join in an ongoing grand jury investigation of Jay Hoyt for possible violations of the Internal Revenue laws. On November 3, 1989, the IRS Regional Counsel's Office requested that IRS special agents be authorized to participate in the grand jury investigation. On October 2, 1990, the U.S. Attorney's Office ended the grand jury investigation of Jay Hoyt without an indictment.
On or about August 31, 1993, the CID commenced an investigation of Jay Hoyt for possible criminal violations of the Internal Revenue laws due to his alleged misrepresentation of the total number and value of purported cattle that the cattle partnerships allegedly owned. The CID closed the investigation on or about October 7, 1993, and did not recommend that the IRS attempt to have Jay Hoyt prosecuted.
On or about September 8, 1995, the CID commenced an investigation of Jay Hoyt for possible criminal violations of the Internal Revenue laws relating to the alleged shortage of cattle from the Hoyt*186 cattle partnerships. The CID closed this investigation on September 29, 1995, and did not recommend that the IRS attempt to have Jay Hoyt prosecuted.
From 1993 through 1998, other governmental agencies also investigated Jay Hoyt, including the Securities and Exchange Commission (SEC), the United States Postal Service (USPS), and the U.S. Trustee. As a result of a referral for further investigation from the U.S. Attorney's Office in Seattle, Washington, to the USPS, postal inspectors in late 1993 commenced an investigation of Jay Hoyt and the Hoyt organization for possible mail fraud violations.
During 1993 and 1994, the SEC conducted an ongoing investigation of Jay Hoyt, but the SEC eventually closed its investigation and deferred to the USPS's investigation of Jay Hoyt that had been commenced in late 1993. In June 1995, postal inspectors seized numerous documents and records from the offices of the Hoyt organization pursuant to a search warrant.
In 1995, Hoyt & Sons Ranch Properties (HSRP) partnership, one of the Hoyt organization's ranch land partnerships, filed a bankruptcy petition under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court. After the bankruptcy filing, *187 the U.S. Trustee commenced an investigation of Jay Hoyt for possible gross mismanagement or bankruptcy fraud in connection with HSRP. The U.S. Trustee also investigated Jay Hoyt in connection with the Management and MLP bankruptcy cases commenced in 1997.
On November 24, 1998, the Government filed an indictment in the U.S. District Court against Jay Hoyt and several other persons who had worked for or engaged in transactions with the Hoyt organization, including April and David Barnes, charging them with numerous counts of conspiracy and mail fraud. On June 2, 1999, the Government filed a superseding indictment against the same defendants, which, among other things, charged Jay Hoyt with 54 counts of conspiracy to commit fraud, mail fraud, bankruptcy fraud, and money laundering. See
Following a jury trial in the U.S. District Court case noted above, on February 12, 2001, Jay Hoyt was convicted of 1 count of conspiracy to commit*188 fraud, 31 counts of mail fraud, 3 counts of bankruptcy fraud, and 17 counts of money laundering. See Id. The U.S. District Court then sentenced Jay Hoyt to 235 months of imprisonment and also ordered him to pay restitution of over $ 102 million to the individual victims of his crimes. This $ 102 million figure represented the total amount that the Government (using Hoyt organization records) determined was paid to the Hoyt organization from 1982 through 1998 by investor-partners in the cattle partnerships, the sheep partnerships, and other similar partnerships that Jay Hoyt promoted. The fraud perpetrated by Jay Hoyt "impacted over 4,000 people and had actual and intended losses exceeding $ 200 million."
Following the Government's filing in late 1998 of the indictment against Jay Hoyt, respondent moved this Court to remove Jay Hoyt as TMP in many of the cattle and sheep partnership cases before the Tax Court. In orders issued from June 22, 2000, through May 15, 2001, this Court removed Jay Hoyt as TMP in numerous cattle and sheep partnership cases, pursuant to
Jay Hoyt and the IRS executed agreements extending the period of limitations on assessments for certain taxable years of RCR #2, RCR #3, RCR #4, RCR #5, and RCR #7. Jay Hoyt executed each of the extension agreements as TMP for the various sheep partnerships.
The partnership taxable year involved, the date upon which the partnership filed its return for that year, the IRS extension form used, the respective dates upon which Jay Hoyt and the IRS executed the various forms, the date to which Jay Hoyt and the IRS (in the form) agreed to extend the period of limitations, and the date upon which respondent issued each partnership the FPAA are as set forth below:
[Table Omitted]
Petitioners bear the burden of proof on all issues raised in their amended petitions.
It is our understanding that the gist of petitioners' theory regarding*190 entitlement to a theft loss deduction for each taxable year at issue is as follows: (1) Each of the nine sheep partnerships was the victim of a theft by Jay Hoyt because his conviction in the U.S. District Court for specific Federal crimes establishes the existence of the theft ; (2) since Oregon is 11 where the partnerships were formed and operated, Oregon is the jurisdiction where the thefts occurred; (3) Oregon criminal statutes that are similar to the Federal criminal statutes Jay Hoyt was convicted of violating are evidence that Jay Hoyt's Federal crimes are also crimes in Oregon; and (4) each partnership is entitled to a theft loss deduction equal to the total amount of cash invested by the partners in each year.
Further, petitioners contend that the Government's successful prosecution of Jay Hoyt precludes respondent, under doctrines of collateral and/ or judicial estoppel,*191 from denying that the Hoyt sheep partnerships and their investor-partners were victims of a theft.
While petitioners argue that a theft occurred in each year equal to the total amount of cash contributed in that year, they admit that each of the sheep partnerships did not discover the alleged thefts until after the years at issue. However, petitioners argue that this Court should apply the doctrine of equitable estoppel and the Ninth Circuit's holding in
Petitioners assert that if the IRS had warned the investor-partners that serious problems existed and disclosed information the IRS had regarding Jay Hoyt's diverting of their funds and selling of nonexistent sheep to their partnerships, the partners would not have continued investing*192 in the partnerships and would have stopped their payments to the Hoyt organization. At a minimum, petitioners state, these partners might have been able to discover the theft earlier, allowing the partnerships and themselves to claim earlier offsetting theft loss deductions. Petitioners thus maintain that each partnership under equitable principles should be allowed a theft loss deduction for each of the years at issue equal to the cash payments made by the partners to the partnerships during those years.
Respondent contends that the Hoyt sheep partnerships are not entitled to theft loss deductions for any of the years at issue. Respondent argues that petitioners have failed to satisfy all of the requirements under
Respondent states that in*193
*194 Respondent disputes that equitable estoppel or the Rod Warren Ink case should be applied to override
To carry this burden of proof,
For purposes of
As used in
"Equitable estoppel is a judicial doctrine that 'precludes a party from denying his own acts or representations which induced another to act to his detriment.'"
The following conditions must be satisfied before equitable estoppel will be applied against the Government: (1) A false representation*198 or wrongful, misleading silence by the party against whom the opposing party seeks to invoke the doctrine; (2) an error in a statement of fact and not in an opinion or statement of law; (3) ignorance of the true facts; (4) reasonable reliance on the acts or statements of the one against whom estoppel is claimed; and (5) adverse effects of the acts or statement of the one against whom estoppel is claimed. See
In addition to the traditional elements of equitable estoppel, the Court of Appeals for the Ninth Circuit requires the party seeking to apply the doctrine against the Government to prove affirmative misconduct. See
Collateral estoppel basically precludes parties and their privies from relitigating issues actually and necessarily litigated and decided in a final prior judgment by a court of competent jurisdiction.
The Supreme Court has broadened the scope of collateral estoppel beyond its common-law limits by abandoning the requirement of mutuality of the parties, and has conditionally approved the "offensive" use of collateral estoppel by a plaintiff who was not a party to the prior lawsuit. See
While some lower courts have indicated that the language in Mendoza is somewhat ambiguous, the Tax Court and the Court of Appeals for the Ninth Circuit, to which this case is appealable, have both on numerous occasions interpreted Mendoza as holding that nonmutual offensive collateral estoppel may not be invoked against the
Judicial estoppel is a doctrine that prevents parties in subsequent judicial proceedings from asserting positions contradictory to those they previously have affirmatively persuaded a court to accept.
The doctrine of judicial estoppel focuses on the relationship between a party and the courts, and it seeks to protect the integrity of the judicial process by preventing a party from successfully asserting one position before a court and thereafter asserting a completely contradictory position before the same or another court merely because it is now in that party's interest to do so.
Because judicial estoppel focuses primarily on the relationship between a party and the courts, it is distinguishable from equitable estoppel, which focuses primarily on the relationship between the parties themselves.
Although judicial estoppel is somewhat similar to collateral estoppel, there are substantial differences between the two doctrines. See*204
As previously stated, in order to sustain a theft loss deduction, petitioners must prove the following elements: (1) That each sheep partnership was the victim of a theft pursuant to the law of the jurisdiction where the loss was sustained; (2) the year that each partnership discovered the loss from the theft; and (3) the amount of theft loss that each partnership suffered. See
Petitioners have the burden of establishing a theft of partnership property from each of the sheep partnerships. Petitioners rely on Jay Hoyt's Federal conviction and three Oregon statutes that are similar to the Federal criminal statutes Jay Hoyt was convicted of violating as proof of the occurrence of a theft from*205 the partnerships. On the premise that Jay Hoyt's conviction establishes a theft from the individual investors, petitioners claim that the partnerships were the victims of Jay Hoyt's theft, because "a theft from all the partners, is a theft from the partnerships." Finally, petitioners cite various cases for propositions that they assert establish a theft from the partnerships.
The Court is mindful that throughout all of petitioners' arguments dealing with a theft loss, they treat "partners" and "partnerships" as the same, making no clear distinction between these terms. As set forth infra pp. 51-55, a clear distinction exists under both California and Nevada law. Further, a distinction between partners and partnerships exists under Federal law. See
Because all the partnerships at issue are subject to the provisions enacted in the Tax Equity & Fiscal Responsibility Act of 1982 (TEFRA),
The Court shall not allow petitioners to freely interchange the partners with the partnerships to suit their arguments. Accordingly, when addressing the petitioners' theft loss arguments, the Court will apply the distinction between the partners and the partnerships as required by law.
On February 12, 2001, Jay Hoyt was convicted of 1 count of conspiracy to commit fraud, 31 counts of mail fraud, 3 counts of bankruptcy fraud, and 17 counts of money laundering. See
Although Jay Hoyt's indictment dealt with fraud perpetrated against individual investors through the use of cattle partnerships only, the judgment ordered restitution to all the partners in the cattle and sheep partnerships. By definition, restitution is the "act of making good or giving equivalent for any loss, damage, or injury." Black's Law Dictionary 1180 (5th ed. 1979). Further, a general obligation exists for a person who defrauds another to make restitution to the person defrauded.
Because the sheep partners were included in the restitution order and all the sheep partnerships were formed, organized, and operated in essentially the same fashion*208 as the cattle partnerships, we conclude that Jay Hoyt defrauded the individual investors in the nine sheep partnerships in the same manner that he was convicted of defrauding the individual investors in the cattle partnerships.
Petitioners state that the "conviction established Hoyt's theft from all his partners and partnerships." Petitioners assert that the indictment in the criminal case provides sufficient facts to establish the existence of a theft for purposes of a theft loss. As previously mentioned, under TEFRA we have no jurisdiction in this partnership level proceeding over nonpartnership items, which can only be determined at the individual partner level. See
Jay Hoyt was convicted of one count of conspiracy to commit mail fraud and multiple counts of mail fraud, but these criminal acts were perpetrated against prospective and current partners, not the partnerships. Nothing in the indictment indicates that the partnerships were the*209 victims of the conspiracy or mail fraud committed by Jay Hoyt, nor was any restitution awarded to the partnerships. Clearly, the victims of these crimes for which Jay Hoyt was convicted and ordered to pay restitution were exclusively individual investors. Crimes perpetrated on the partnerships simply were not the nature or focus of the Federal conspiracy and mail fraud investigation and prosecution.
Jay Hoyt was convicted of 31 counts of mail fraud for using the USPS to execute his intentional scheme to defraud and to obtain money through false promises and false pretenses. Each of the 31 counts corresponds to a particular mailing either sent by the Hoyt organization from Burns, Oregon, to a partner in one of the cattle partnerships or a check sent by a partner in one of the cattle partnerships to Burns, Oregon. These individual mailings collectively establish that the victims of the mail fraud were the individual cattle partners who received mailings from the Hoyt organization and sent checks to the Hoyt organization. For the sheep partnerships all to be victims of mail fraud, each partnership would have had to receive some mail from the Hoyt organization and then part with partnership*210 property based on false promises and false pretenses contained within the mailing. No evidence was presented establishing that these events ever occurred. Further, as previously stated, the partnerships were not included in the indictment as victims of the mail fraud.
The indictment charged and the prosecution proved that Jay Hoyt and others made false representations and promises "to prospective investors and current investors in order to obtain money from them" using the "investors simply as sources of cash." The fraud was perpetrated on the investors; Jay Hoyt knew for many years he did not have the total amount of livestock that he claimed and could not meet the various guarantees he promised, yet he continued to create new partnerships and fictitious livestock as a scheme and artifice to defraud individuals. The fact that Jay Hoyt used the partnerships as an integral part of perpetuating fraud against individual investors through false promises and false pretenses does not establish a theft on the partnership level.
Petitioners cannot rely on Jay Hoyt's conspiracy to commit fraud and mail fraud convictions to establish theft from the partnerships by inserting a different set*211 of victims from those stated in the indictment and proven at the criminal trial. Because we determine that Jay Hoyt's fraud was perpetrated on the individual partners, we hold that his conviction for conspiracy to commit fraud and mail fraud does not establish that a partnership level theft occurred.
Petitioners make no mention of Jay Hoyt's conviction for bankruptcy fraud. As to this charge, Jay Hoyt was convicted of knowingly and fraudulently (1) concealing property from creditors, the U.S. Trustee, and other officers of the court, (2) making material false oaths, accounts, and testimony, and (3) making material false declarations, certificates, verifications, or statements under penalty of perjury. There is no evidence in the record that any of the property concealed was sheep partnership property. Petitioners do not specifically assert, the record does not contain evidence, nor do we find that the conviction for bankruptcy fraud establishes a theft on the sheep partnerships for any of the years at issue.
Jay Hoyt was also convicted of money laundering for concealing from the bankruptcy trustee over $ 1,600,000 in funds received from investors after June 5, 1997, that were deposited*212 into First Security Bank and later withdrawn in varying increments. The 17 money laundering counts for which Jay Hoyt was convicted each represent individual checks drawn on the First Security Bank account that were each (1) made payable to Hoyt related partnerships or individuals, and (2) of a value greater than $ 10,000. The dates for each of these 17 checks range from on or about June 30, 1997, through January 15, 1998. Accordingly, the money laundering conviction, which was based on activities that commenced in 1997, cannot possibly be used as evidence to establish a theft prior to that date. Since 1996 is the last year at issue for all of the nine sheep partnerships, the money laundering conviction in no way establishes a theft from any of the sheep partnerships for any of the years at issue.
Rejecting the arguments advanced by petitioners, the Court holds that none of the Federal crimes committed by Jay Hoyt establish that a
Petitioners contend that even if the Court finds that Jay Hoyt's Federal conviction does not establish theft on the partnership level, at a minimum, the conviction establishes a theft from the partners. Based on this contention and their assertion that the partners are synonymous with the partnerships, petitioners conclude that the partnerships sustained a theft. To reach this conclusion, petitioners argue that: (1) Under State law, a partnership is its partners; (2) since the partnerships are aggregates of all the partners, and all the partners were defrauded, then the partnerships were defrauded; (3) stealing from partners by using the partnerships as the vehicle for fraud is indistinguishable from stealing from the partnerships; and (4) stealing from the partnerships is a theft from the partners because the partners jointly own the partnership assets. Petitioners have failed to cite any authority supporting these arguments.
Petitioners state that the partnership law of Oregon, Nevada, and California arguably applies to the partnerships*214 at issue. However, only California and Nevada law applies, because eight of the sheep partnerships were formed under and governed by California law, with the remaining sheep partnership formed under and governed by Nevada law.
In particular, RCR #1, RCR #2, RCR #3, and RCR #4 were formed in California as limited partnerships. RCR #5, RCR #6, OGT 87, and OGT 90 were formed in California as general partnerships, and RCR #7 was formed in Nevada as a general partnership.
Petitioners' argument that under State law a partnership is its partners provides no legal support for their conclusion that the partnerships were victims of theft. Under California limited partnership law, a limited partnership is a partnership formed by two or more persons under California law and having one or more general partners and one or more limited partners.
Petitioners' argument that the partnerships were defrauded because the partnerships are aggregates of all the partners who were defrauded is unsupported by California and Nevada law. This argument is a refined rendition of petitioners' first argument and is based on their conclusion that for all purposes a partnership is an aggregate of its individual partners.
The "aggregate theory" and the "entity theory" are two theories regarding the basic nature of a partnership. The aggregate theory considers a partnership to be no more than an aggregation of the individual partners. Whereas, the entity theory characterizes a partnership as a separate entity distinct from its partners. Whether the aggregate theory or the entity theory should be applied for all purposes has not ultimately been determined.
Under the aggregate approach, each partner*216 has an interest in specific partnership property.
The California and Nevada partnership law deals with partnerships as aggregates for certain purposes and as entities for others. The definition of a partnership as an "association of two or more persons" to carry on as co-owners a business for profit suggests that a partnership is an aggregate of its members. However, the fact that specific partnership property is a distinct category of property indicates the entity approach would apply to partnership assets. See
The entity approach (as opposed to the aggregate approach) is in accord with the clear intent of the California and Nevada partnership law, that partnership property is a separate and distinct category of property. Accordingly, petitioners cannot apply the aggregate approach to conclude*217 that the partnerships were defrauded.
Petitioners' argument that Jay Hoyt's use of the partnerships to perpetrate fraud on the partners is tantamount to stealing from the partnerships is without merit. The record establishes that Jay Hoyt defrauded the individual investors, not the partnerships, of their money. As previously mentioned, the fact that Jay Hoyt utilized the partnerships as a guise to defraud individuals does not establish a theft on the partnership level.
Petitioners' argument that the partners jointly own the partnership assets is unsupported by the law. Under California limited and general partnership law and Nevada general partnership law, a partner's interest in a partnership is personal property and the partner has no interest in specific partnership property. See
Specific partnership property is a distinct category of property, separate from a partner's interest in the partnership.
The arguments presented by petitioners fail to recognize the legal distinction between a partnership and its partners. Thus their claim that a theft from the partners is a theft from the partnerships is without merit and unsupported by the law.
Petitioners assert that Jay Hoyt's criminal acts, for which he was convicted under Federal law in Oregon, constitute theft under similar Oregon statutes. Namely, Oregon Revised Statutes (ORS): (1)
Petitioners state that they rely on the Oregon criminal statutes because Jay Hoyt was convicted of Federal crimes in Oregon and each partnership was formed and operated in Oregon. As we previously determined, the specific crimes Jay Hoyt was convicted of violating in Oregon were perpetrated against individual investors and were not thefts of partnership property. Further, petitioners' claim that the sheep partnerships were formed and operated in Oregon is factually incorrect. As previously discussed, *220 eight of the sheep partnerships at issue were formed in California and one partnership was formed in Nevada.
Not only were a majority of the partnerships formed in California, but the record shows that the majority of sheep operations were performed in California. All of the agreements were entered into in California between California or Nevada partnerships and Barnes Ranch, a sole proprietorship operated in California. The record establishes that any sheep that actually existed were located on Barnes Ranch in Sacramento, California. In addition, for all the years at issue, the record shows that the checks from individual sheep partners were received at the Elk Grove, California, office and deposited into the RCR account or the pooling account at the bank located in Elk Grove, California.
While the record contains evidence that money was deposited into bank accounts in California during the years at issue, no evidence was presented showing that the money ever left California. There is no evidence in the record to establish that any of the investor funds were ever transferred to the Hoyt office in Burns, Oregon, or deposited into an Oregon bank account during any of the years at*221 issue. Further, petitioners failed to present any evidence that any partnership property was illegally taken from anywhere in Oregon during any of the years at issue.
Without any evidence to link the investor funds to Oregon, petitioners cannot possibly prove that Oregon is the jurisdiction where the alleged thefts occurred. Therefore, due to the lack of evidence presented on this issue, petitioners have failed to establish that a theft of partnership property occurred within the State of Oregon during any of the years at issue. However, in light of Jay Hoyt's criminal activities in Oregon, we shall analyze the three Oregon statutes cited by petitioners to determine whether any illegal activity occurred in Oregon sufficient to establish petitioners were the victims of a theft.
We believe that petitioners equate the
Petitioners state in their brief that the sheep partnerships entered into "transactions with Hoyt and Barnes upon having been deceived as to the transaction." 14 The record does not support petitioners' assertion that the partnerships were deceived in any way. Although Jay Hoyt and David*223 Barnes did enter into various partnership agreements and transactions with the intent to deceive, the victims of their intentional deception were the individual investors, not the partnerships. Many of the documents created by the partnership transactions were merely instruments intentionally used to defraud individual investors by creating false impressions and making promises known not to be true.
As previously stated, petitioners readily admit that investors would not have parted with their money if not for Jay Hoyt's deceptive practices. Petitioners' admission further emphasizes that the thefts occurred when the individuals were deceived into parting with their money. The partnerships were not victims of those deceptive practices and were not deceived by those practices into parting with any partnership property.*224 Petitioners fail to show how Jay Hoyt's theft by deception perpetrated against the individual partners constitutes a theft of partnership property under the law of Oregon.
The record is void of any evidence to establish that Jay Hoyt or anyone else violated the Oregon theft by deception statute with respect to the partnerships. Accordingly, petitioners have not met their burden of establishing a theft on the partnership level for
Petitioners also cite the Oregon money laundering statutes,
Petitioners have not provided evidence that Jay Hoyt or anyone else conducted a financial transaction with proceeds of an unlawful activity of a sum equal to the total amount invested by the partners in each of the years at issue. Unlike the indictment and evidence presented at Jay Hoyt's Federal criminal trial, petitioners*225 failed to present any evidence that Jay Hoyt or anyone else during any of the years at issue knowingly engaged in a financial transaction in Oregon of a value greater than $ 10,000 in property using the proceeds of any unlawful activity.
Additionally, both of the Oregon money laundering statutes require proof that an underlying unlawful activity was committed to obtain the proceeds involved in the financial transaction. Yet, petitioners did not specify which alleged unlawful activity was committed to obtain the proceeds.
Jay Hoyt's indictment specifically stated the underlying unlawful activity committed in Oregon and presented 17 specific monetary transactions (negotiated checks) constituting money laundering. 15 Because those checks bore dates in 1997 or 1998, each check was negotiated after the tax years here at issue. See supra p. 50. Petitioners did not introduce any checks or similar evidence of any monetary transactions that were negotiated during any of the years at issue.
*226 Petitioners have not proven that any of the partnerships were victimized during the years at issue by a violation of either of the Oregon money laundering statutes. Petitioners failed to present any evidence proving the elements of either crime. Thus, by merely citing the two Oregon money laundering statutes and not proving the elements of those crimes, petitioners have not established a theft on the partnership level for any of the years at issue.
We now address the following cases which petitioners rely upon as authority to support their various arguments that the sheep partnerships are entitled to a theft loss deduction. Petitioners cite: (1)
Petitioners' reliance on
The taxpayers in Nichols were individuals who invested in a tax shelter and proved that the promoter of the investment did not execute the transactions for which the investors bargained. In Nichols, the taxpayers alleged and proved numerous fraudulent misrepresentations by the promoter which induced the individuals to part with their money and which constituted theft under applicable State and Federal law.
*228 Although Jay Hoyt committed acts similar to the promoter in Nichols, the critical difference is that Nichols was a deficiency suit in which the petitioners were individual investors who established they were the victims of a theft of their own out-of- pocket expenditures. By contrast, the instant case is a TEFRA proceeding brought on behalf of the partnerships seeking to deduct as a theft loss from the partnerships the total amount of cash fraudulently obtained from the investors.
As previously discussed, a theft from the partners is not a theft from the partnerships, and Nichols cannot be cited as authority to make this leap. The individual investors in Nichols were allowed a theft loss deduction solely because they met all the required elements of
Likewise, the unpublished opinion in
As in Nichols, at issue in Cummin were theft loss deductions of individual*229 investors, not of partnerships. Exclusively analyzing a theft loss on the individual investor level, Cummin never addresses the issue of a partnership level theft loss deduction. We agree with respondent and find that Cummin simply is not authority for petitioners' proposition that "the partnerships are entitled to a business theft loss."
In their reply brief, petitioners claim that they cited Cummin for the proposition that "the Tax Court has contemplated there will be circumstances where a partner's out-of- pocket loss in a tax shelter is deductible as a theft loss." This later proposition adds nothing to petitioners' arguments and is not authority to allow a partnership level deduction where the individual partners are swindled.
Finally, petitioners argue that both
Both Girgis and Harrell indicate that a partner's embezzlement of partnership funds gives rise to a partnership level deduction. Embezzlement of funds from the sheep partnerships, if proven, could be a theft within the purview of
The year of discovery requirement would be relevant in this case only if the petitioners had established a theft loss at the partnership level, which they have not. Assuming, arguendo, that petitioners had proven that the partnerships were the victims of a partnership level theft, petitioners still failed to satisfy the year of discovery element required to claim a theft loss deduction.
Petitioners acknowledge that pursuant to
Petitioners' sole purpose in seeking a deviation from the discovery date requirements of
Petitioners argue that the doctrine of equitable estoppel precludes respondent from relying on
As a threshold matter, petitioners must prove affirmative misconduct by the Government in addition to the traditional elements of equitable estoppel. See
And, contrary to petitioners' assertion that the traditional elements of equitable estoppel have been met, thus warranting a departure from the year of discovery requirement in
Petitioners, nonetheless, fault respondent for not doing more to stop the fraud perpetrated by Jay Hoyt. They assert that respondent, well before 1993, should have acted more effectively to protect the partners and prospective investors from Jay Hoyt's fraudulent activities. Our review of the record discloses the substantial difficulties that respondent encountered in obtaining a sufficient amount of information to conclude the existence of a fraud prior to 1993.
By the early 1980s, respondent generally disallowed the tax benefits the cattle and sheep partnerships and their partners claimed. Further, respondent engaged in almost continuous*235 and protracted litigation with the partnerships and partners over the disallowance of partnership tax benefits. However, the decision in
Although in 1989, respondent suspected that Jay Hoyt had been selling a large number of fictitious cattle to the cattle partnerships, the evidence respondent possessed at that time did not confirm this suspicion. As a result, respondent decided that during the examination of the post-1986 cattle and sheep partnership returns, a count and inspection of all the cattle and sheep were essential. From the fall 1992 through spring 1993 livestock count and inspection, respondent determined that the Hoyt organization had greatly overstated the number and value of the livestock owned by the partnerships. As a result of the count and inspection, respondent believed by February 1993 that he possessed sufficient evidence to support the issuance of prefiling notices and freezing tax refunds claimed by partners.
Following the respondent's issuance of*236 prefiling notices to the partners in February 1993, and the completion of the count and inspection of the cattle and sheep, the Examination Division on or about December 30, 1993, issued letters to all the partners in which it warned them that IRS personnel had concluded and determined that: (1) A number of fictitious breeding cattle and sheep had been sold to the Hoyt cattle and sheep partnerships; and (2) Jay Hoyt and the Hoyt organization had overstated both the numbers and value of the purported livestock that the partnerships allegedly owned.
In the Examination Division letter sent to each partner, respondent specifically informed the partners of the problems that respondent had uncovered in the Hoyt organization's tax shelter program as a result of the respondent's count and inspection of the cattle and sheep. The letter provided the partners with sufficient information to place them on notice that fraudulent activity might be taking place. By providing the partners with their findings, respondent discharged any duty it arguably had to the partnerships and partners, as it was then up to them to decide whether to take advantage of this information. 16 E.g.,
Notwithstanding their receipt of the December 30, 1993, Examination Division letter, the record reflects that many partners instead chose to ignore the evidence and believe Jay Hoyt. While believing Jay Hoyt may have ultimately been to their detriment, the partners'*238 decision to do so and the failure of them and the partnerships to discover any of the theft losses during the years in issue was not due to a false representation or misleading silence by respondent.
Petitioners' argument is based on the perspective of the individual partners, not the partnerships. The party claiming equitable estoppel must be the party that relied on the Government's representations and suffered a detriment because of that reliance.
As previously discussed, the partnerships and the partners are separate and distinct. By arguing that the partners and not the partnerships suffered to their detriment, petitioners have not met a required element of equitable*239 estoppel. Accordingly, petitioners may not apply equitable estoppel to depart from the
Citing
In Rod Warren Ink, the Court of Appeals for the Ninth Circuit held that the personal holding company (PHC) therein could deduct theft losses in the years the losses were sustained, rather than in the year the losses were discovered.
Due to the unique interaction between
Petitioners' reliance on Rod Warren Ink is misplaced. The unique facts in
A major distinction between Rod Warren Ink and the instant case is that the sheep partnerships are not personal holding companies. See
In addition, petitioners have not presented a persuasive argument that a departure from the literal meaning of
For all the years at issue, the sheep partnerships distributed substantial tax benefits to the sheep partners under Jay Hoyt's and the Hoyt organization's tax shelter program. Up until the time the amended petitions were filed in the instant case following the River City Ranches #4,
Petitioners' argument is in no way analogous to the "inequitable and absurd" result in
A departure from the literal meaning of
By the partnerships strictly following the application of
We have decided that equitable estoppel and the holding in
Although failure to prove only one of the elements of a theft loss prohibits a taxpayer from claiming the deduction, petitioners have failed to establish two essential elements of a theft loss deduction. Namely, (1) that the partnerships were victims of theft and (2) that the year of discovery was a year before*245 the Court. Since we have held that the partnerships are not entitled to a theft loss deduction for any of the years at issue, the petitioners' arguments concerning the remaining elements of a theft loss are moot.
To further support their position, petitioners argue that both collateral and judicial estoppel preclude respondent from denying that Jay Hoyt's conviction establishes a theft from the partnerships and that the amount of the theft is equal to the total amount contributed by the partners. Petitioners allege that Jay Hoyt's conviction establishes a theft from the partnerships and that the respondent cannot deny what the Government has already proven.
Petitioners attempt to utilize offensive collateral estoppel against respondent. Procedurally, in order for a plaintiff to assert offensive collateral estoppel against a defendant in a current action, the current defendant must have unsuccessfully litigated the issue in a previous action. See
Further, petitioners seek to apply the nonmutual form of offensive collateral estoppel against respondent to establish the existence of a theft from the partnerships. Petitioners claim that language in
Petitioners assert, yet present no authority, that Mendoza has been limited by some courts "to situations where the policy concerns of the Court exist." Petitioners cite, exempli gratia,
Contrary to petitioners' construction of Mendoza, this Court and the Court of Appeals for the Ninth Circuit have both on numerous occasions interpreted Mendoza as holding that nonmutual offensive collateral estoppel may not be invoked against the Government. See
Assuming, arguendo, that in some circumstances nonmutual offensive collateral estoppel could be applied against respondent, petitioners failed to show that all the conditions for application of collateral estoppel have been met. See
Petitioners claim that respondent is estopped from relitigating a theft from the partnerships, because Jay Hoyt was "convicted of stealing all the money contributed to the partnerships by all the partners." Petitioners' statement is factually misleading. As previously addressed, Jay Hoyt was convicted of defrauding the individual investors, not the partnerships. Furthermore, Jay Hoyt's theft from the individual partners was not ipso facto a theft from the partnerships.
The issue presented in Jay Hoyt's criminal prosecution was whether he conspired*249 to "defraud thousands of investors." There is no dispute that the individual investors were defrauded of some or all of the money they contributed. However, Jay Hoyt was not charged with any crime against the sheep partnerships. The issue in the instant cases is whether a "theft" occurred from the nine sheep partnerships. The issue of thefts from the sheep partnerships involved herein is not identical to an issue litigated and decided in Jay Hoyt's criminal trial. The two issues are separate and distinct. Therefore, petitioners have failed to satisfy the first condition required under Peck to apply collateral estoppel. Consequently, we need not address the remaining Peck conditions of collateral estoppel.
For the reasons stated above, petitioners are precluded from asserting collateral estoppel against respondent with respect to the issue of a theft from the sheep partnerships for any of the years at issue.
Petitioners assert that judicial estoppel should apply because respondent has taken "clearly inconsistent" positions from those taken in the criminal prosecution of Jay Hoyt. Petitioners assert that while the total amount of restitution ordered in the judgment*250 against Jay Hoyt establishes the amount of the theft, respondent takes the position that petitioners have not proven the amount of theft for the years at issue. Further, petitioners claim that respondent should not be allowed to contest that Jay Hoyt is "guilty of fraud on a massive scale". According to petitioners, the "integrity of the judicial process would suffer if the IRS were allowed to make the absurd claim that Hoyt did not defraud petitioners."
The Court is not persuaded that respondent has taken any inconsistent positions with respect to the conviction of Jay Hoyt. As previously stated throughout this opinion, petitioners have failed to establish that they were defrauded of the amounts alleged as theft losses. Further, Jay Hoyt's conviction does not establish thefts from the partnerships for any of the years at issue. Respondent does not argue that Jay Hoyt is innocent of fraud in inducing the investors to contribute cash to the partnerships; respondent instead takes the position that the partnerships were not the victims of that fraud. Respondent's position is consistent with that of the Government in the criminal prosecution of Jay Hoyt, that the victims of his fraud*251 were the individual investors.
Petitioners have failed to establish the elements necessary to assert judicial estoppel against respondent. Therefore, judicial estoppel cannot be utilized to prevent respondent from disputing petitioners' claim of the existence and amount of the thefts from the partnerships.
This Court is well aware of Jay Hoyt's criminal activities and the harm he has caused to thousands of individuals. Further, we sympathize with those that were defrauded by Jay Hoyt's deceptive practices. However, petitioners did not introduce any evidence at trial which would support a finding that a theft loss occurred on the partnership level during each of the years at issue. Petitioners have not met the elements required to sustain a
In their amended petitions, petitioners specifically pleaded that the period of limitations had expired for each of the years at issue. *252 On brief, petitioners now assert that the period of limitations has expired only with respect to the following partnership taxable years: (1) For RCR #2, 1987; (2) for RCR #3, 1987 and its year ended September 30, 1989; (3) for RCR #4, 1984; (4) for RCR #5, 1987 and 1988, and its year ended September 30, 1989; (5) for RCR #7, 1987 and 1988, and its year ended September 30, 1989.
On April 23, 2001, respondent filed a motion for partial summary judgment that the applicable period of limitations with respect to 1984 for RCR #4 had not expired in docket No. 14038-96. After petitioners filed an objection to that motion on June 13, 2001, and upon hearing from the parties on the motion during the trial in the instant case, the Court took respondent's motion under advisement.
Petitioners contend that
Alternatively, petitioners argue that Jay Hoyt, as the TMP, could not bind the partners of the partnership because he suffered from numerous disabling conflicts of interest and could not properly represent the interests of the partners. Petitioners maintain that Jay Hoyt's disabling conflicts of interest bring the instant case squarely within the Court of Appeals for the Second Circuit's*254 holding in
Petitioners maintain that these alleged disabling conflicts of interest on the part of Jay Hoyt involved other conflicts besides the criminal tax investigations. Petitioners allege that these other conflicts include Jay Hoyt's: (1) Perpetrating an ongoing fraud upon the partners by misrepresenting the numbers and values of their livestock, while purporting to act as the partners' fiduciary; (2) diverting partner contributions to his other businesses and properties; (3) participation on both sides of the livestock sales that the Hoyt organization made to the partnerships; (4) negotiation of tax issues with the IRS where the interests of the Hoyt family and the Hoyt organization conflicted with the interests of the Hoyt cattle and sheep partnerships and their partners; (5) commingling of partnership payments and failing to account for his and the Hoyt organization's use of those funds; (6) incentive to make concessions to the IRS, while under criminal investigation, that were harmful to the partners in order to have the IRS abate*255 certain tax return preparer penalties that the IRS had assessed against him; (7) failure to file the partnership returns timely, thereby incurring late filing penalties; and (8) failure, during 1986, to either (a) inform the partners that he was under criminal investigation by the IRS, or (b) withdraw from his fiduciary roles on behalf of the partners.
Respondent contends that the periods of limitations applicable to the partnership years in question have not expired, because the extension agreements that Jay Hoyt (the TMP) and the IRS executed are valid and binding upon the partners. Respondent asserts that
Respondent further argues that*256 the rationale employed by the Court of Appeals for the Second Circuit in
Respondent maintains that to the extent other partnership conflicts between Jay Hoyt and the partners existed, those conflicts were of Jay Hoyt's making, not due to IRS action or inaction. Further, respondent asserts that the IRS was not a party to the dealings between Jay Hoyt and the sheep partners which created these alleged conflicts of interest, nor was the IRS involved in concealing Jay Hoyt's fraud upon the partners or responsible for his failures.
The TMP is the central figure of partnership proceedings and his status is of critical importance to the proper functioning*257 of the partnership audit and litigation procedures of
Generally, there is a 3-year period of limitations on the assessment of a tax attributable to any partnership item.
A TMP is generally designated at the time the partnership return is filed. See (1) Termination of designation. A designation of a tax matters partner for a taxable year under this section shall remain in effect until -- *259 * * * * * * * (4) The partnership items of the tax matters partner become nonpartnership items under * * * * * * * The termination of the designation of a partner as the tax matters partner under this paragraph (1) does not affect the validity of any action taken by that partner as tax matters partner before the designation is terminated. For example, if that tax matters partner had previously consented to an extension of the period for assessments under section
The treatment of items as partnership items with respect to a partner under criminal investigation for violation of internal revenue laws relating to income tax will interfere with the effective and efficient enforcement of the internal revenue laws. Accordingly, partnership items of such a partner arising in any partnership taxable year ending on or before the last day of the latest taxable year of the partner to which the criminal investigation relates shall be treated as nonpartnership items as of the date on which the partner is notified that he or she is the subject of a criminal investigation and receives written notification from the Service that his or her*261 partnership items shall be treated as nonpartnership items. The partnership items of a partner who is notified that he or she is the subject of a criminal investigation shall not be treated as nonpartnership items under this section unless and until such partner receives written notification from the Service of such treatment.
In
This Court, however, held that the extensions in
In the instant case, the Court's findings, supra p. 31, list the partnership taxable years in question, the date upon which the partnership return for each such year was filed, the respective dates upon which Jay Hoyt (the TMP of that partnership) and the IRS executed extension forms extending the limitation period for that year, the date to which Jay Hoyt and the IRS (in each extension) agreed to extend the limitation period, and the date upon which respondent issued the partnership the FPAA for that year.
As to each partnership taxable year in question, the parties essentially agree that the 3-year period of limitations*264 generally provided under
The parties disagree solely over whether the extensions that Jay Hoyt executed for the taxable years set forth supra p. 83, are valid and bind the partners of the partnership. Except for the extension concerning the 1984 taxable year of RCR #4, these extensions concern post-1986 partnership taxable years and were executed by Jay Hoyt and the IRS on various dates from February 1991 through March 1993. Jay Hoyt and the IRS executed the extension concerning RCR #4's 1984 taxable year on August 1, 1987.
The Court rejects petitioners' contention that
Petitioners next argue that Jay Hoyt, in executing the extensions in question, was operating under purported disabling conflicts of interest, requiring this Court, pursuant to the rationale of the Court of Appeals for the Second Circuit in
In Transpac,
In Phillips, neither the Court of Appeals for the Ninth Circuit nor this Court viewed and interpreted the Transpac holding as broadly as petitioners argue for in the instant case. Further, both courts readily distinguished the facts in Phillips from those in Transpac. See Phillips puts particular reliance on Transpac Drilling Venture 1982-12 v. Commissioner, Transpac sets out with admirable clarity that a TMP, although created by statute, owes a fiduciary duty to his partners, and that, as the TMP's acts bind his partners, they "secure their due process protection" by his faithful discharge of his fiduciary obligations. Two circumstances differentiate this case. The IRS made no attempt to get waivers from limited partners. The partnerships for which Hoyt was being investigated have not been shown to be the partnerships involved*269 in this case. It is not intuitively obvious that Hoyt did what is a routine accommodation -- signing a waiver in order to avoid immediate assessment by the IRS -- in order to ingratiate himself in the investigation of his partnerships. Phillips has speculated that Hoyt so acted; he has not proved it.
This Court in Phillips further noted that Jay Hoyt, in executing the extensions, did not try to curry favor or ingratiate*270 himself with the IRS in relation to the criminal tax investigations. He continued to promote the partnerships in his tax shelter program after the initiation of the criminal tax investigations, continued to defend his legal position throughout the criminal tax investigations, and continued to maintain that all partnership items were legitimate, a position consistent with that of his partners.
In
In the instant case, Jay Hoyt executed virtually all of the extensions*271 in question when no criminal tax investigation of him was being conducted. He executed extensions concerning the post- 1986 partnership years on various dates from February 1991 through March 1993. Earlier, in the summer of 1989, CID commenced an investigation of Jay Hoyt for allegedly selling nonexistent cattle to the Hoyt cattle partnerships, but this investigation was completed by October 1, 1990. During this investigation of Jay Hoyt, CID in October 1989 was asked to review certain information and determine whether IRS special agents should join in an ongoing grand jury investigation of Jay Hoyt by the U.S. Attorney's Office in Sacramento. This grand jury investigation was closed on October 2, 1990. No prosecution resulted from either the CID investigation or the grand jury investigation.
Jay Hoyt executed the first of the extensions in question concerning post-1986 partnership taxable years in mid-February 1991, several months after the closing of the above CID and grand jury investigations in early October 1990. He executed the last of these extensions concerning post-1986 partnership years in early March 1993, over 5 months before CID's next criminal tax investigation of him*272 commenced on or about August 31, 1993. Accordingly, the argument that an ongoing criminal tax investigation created a disabling conflict for Jay Hoyt in executing these extensions is without merit, since no criminal investigations of Jay Hoyt were being conducted when these extensions were executed.
The extension concerning RCR #4's 1984 taxable year was executed by Jay Hoyt and the IRS on August 1, 1987, shortly before the U.S. Attorney's Office in Sacramento declined to prosecute him for his alleged backdating of documents. As this Court observed in
As in Phillips, there is no evidence in the instant case that Jay Hoyt executed the extensions under pressure in exchange for leniency in relation to any criminal tax investigation of him. In addition, Jay Hoyt continued to defend the legitimacy of the sheep partnerships as he did with the cattle partnerships in the Phillips case. With*273 only minor exceptions, Jay Hoyt executed the extensions in the instant case during the same time period he executed the extensions in Phillips.
In the instant case, the Court concludes that petitioners have failed to establish that Jay Hoyt, in executing the extension concerning the 1984 taxable year of RCR #4, was operating under a disabling conflict of interest due to this ongoing criminal investigation.
Although petitioners have alleged numerous breaches and violations by Jay Hoyt of other general partnership duties, his violations of those duties, if proven, have only a remote and highly attenuated connection, at best, to his execution as TMP of the extensions in dispute. The Court is not convinced that such violations by Jay Hoyt of his other partnership duties in managing and operating a partnership, constitute disabling conflicts of interest in executing the extensions as TMP. See
Petitioners further suggest that Jay*274 Hoyt granted the extensions in exchange for the IRS's abatement of penalties against him totaling $ 119,700, covering years prior to 1989. Of the $ 119,700 of abated penalties, $ 90,000 were penalties under
In light of the issuance of the 1989 test case opinion in
Also, in order to hold Jay Hoyt liable for certain return preparer penalties, the Government in such refund suit would have the burden of proof in establishing Jay Hoyt's liability for the penalty and would have to show, among other things, that Jay Hoyt had known that the deductions and credits claimed were incorrect and would result in an understatement of another's tax. See
Based on the foregoing, petitioners have failed to establish that any of the extensions Jay Hoyt (the TMP) and the IRS executed are invalid. Accordingly, the Court holds that the period of limitations*276 with respect to each partnership taxable year in question did not expire prior to respondent's issuance of the FPAA. See
In their amended petitions, petitioners ask this Court to determine that purported purchases of breeding sheep reported by some sheep partnerships are not tax-motivated transactions for purposes of
*277 On July 16, 2001, during the trial in the instant case, respondent filed a motion to dismiss this
Petitioners contend that this Court does have jurisdiction in these partnership level proceedings to determine whether or not the transactions involving the sheep partnerships are attributable to tax-motivated transactions for purposes of
Petitioners further argue that since they have conceded all of the depreciation deductions and investment credits that the Hoyt sheep partnerships claimed, the Court should find that there are no valuation overstatements because any statements of value or adjusted basis on the partnership returns concerning the partnership's purported breeding sheep are now irrelevant. In making this argument, petitioners are relying upon and seeking to come within the decisions by the U.S. Courts of Appeals for the Fifth and Ninth Circuits and this Court in
Todd, Gainer, and McCrary all held that the
Noting the U.S. Court of Appeals for the Fifth Circuit's decision in
Respondent contends*280 that this Court, as set forth in respondent's motions to dismiss, lacks jurisdiction in these partnership proceedings to determine whether
Respondent disputes petitioner's argument that the partnership transactions do not involve valuation overstatements for purposes of
Citing decisions*281 of several appellate courts and this Court, respondent asserts that where a partnership fails to acquire ownership of any sheep for tax purposes, the partnership's correct adjusted basis for the sheep is zero, and a valuation overstatement under
Respondent additionally disagrees with petitioners' argument that the partnership transactions do not involve sham or fraudulent transactions under
*283 The
Congress enacted the partnership audit and litigation procedures to provide a method to uniformly adjust items of partnership income, loss, deduction, or credit that would affect each partner. The statute makes a distinction between partnership items and nonpartnership items. The tax treatment of partnership items may only be determined in a partnership level proceeding, while nonpartnership items may only be determined at the individual partner level. See
(3) PARTNERSHIP ITEM. -- The term "partnership item" means, with respect to a partnership, any item required to be taken into account for the partnership's taxable year under any provision of subtitle A to the extent regulations prescribed by the Secretary provide that, for purposes of this subtitle, such item is more appropriately determined at the partnership level than at the partner level. [Emphasis added.]
As defined, partnership items can only be those items arising under subtitle A of the
To*286 reflect our holdings with respect to Issues 1 through 3 and the concessions of the parties,
Appropriate orders and decisions will be entered under
APPENDIX
Docket No. Partnership and Tax Matters Partner
__________ ___________________________________
787-91 River City Ranches #1 Ltd., Leon Shepard,
Tax Matters Partner
River City Ranches #2 Ltd., Leon Shepard,
Tax Matters Partner
River City Ranches #3 Ltd., Leon Shepard,
Tax Matters Partner
River City Ranches #4 Ltd., Leon Shepard,
Tax Matters Partner
River City Ranches #5 Ltd., Leon Shepard,
Tax Matters Partner
River City Ranches #6 Ltd., Leon Shepard,
*287 Tax Matters Partner
4876-94 River City Ranches #2, J.V., David Britton,
Tax Matters Partner
9550-94 River City Ranches #3, J.V., Michael Dale,
Tax Matters Partner
9552-94 River City Ranches #5, J.V., Stephen Hughes,
Tax Matters Partner
9554-94 River City Ranches 1985-2, J.V.,* Jeffry Bergamyer,
Tax Matters Partner
13595-94 River City Ranches #3, J.V., Michael Dale,
Tax Matters Partner
13597-94 River City Ranches #5, J.V., Stephen Hughes,
Tax Matters Partner
13599-94 River City Ranches 1985-2, J.V.,
Tax Matters Partner
382-95 *288 Ovine Genetic Technology Syndicate 1987-1, J.V.,
Linda Routzahn, Tax Matters Partner
383-95 River City Ranches 1985-2, J.V.,
Tax Matters Partner
385-95 River City Ranches #3, J.V., Michael Dale,
Tax Matters Partner
386-95 River City Ranches #5, J.V., Stephen Hughes,
Tax Matters Partner
14718-95 River City Ranches #1, J.V., Stephen Hughes,
Tax Matters Partner
14719-95 River City Ranches #2, J.V., David Britton,
Tax Matters Partner
14720-95 River City Ranches #3, J.V., Michael Dale,
Tax Matters Partner
14722-95 River City Ranches #5, J.V., Stephen Hughes,
*289 Tax Matters Partner
14724-95 River City Ranches #7, J.V.,
Tax Matters Partner
21461-95 Ovine Genetic Technology Syndicate 1987-1, J.V.,
Linda Routzahn, Tax Matters Partner
5196-96 Ovine Genetic Technology Syndicate 1987-1, J.V.,
Linda Routzahn, Tax Matters Partner
5197-96 Ovine Genetic Technology 1990, J.V., Leon Shepard,
Tax Matters Partner
5198-96 River City Ranches #1, J.V., Stephen Hughes,
Tax Matters Partner
5238-96 River City Ranches #4, J.V., Leon Shepard,
Tax Matters Partner
5239-96 River City Ranches #7, J.V.,
Tax Matters Partner
5240-96 *290 River City Ranches #5, J.V., Stephen Hughes,
Tax Matters Partner
5241-96 River City Ranches #6, J.V., Joseph Sotro, Sr.,
Tax Matters Partner
9779-96 River City Ranches #4, J.V., Leon Shepard,
Tax Matters Partner
9780-96 River City Ranches #5, J.V., Stephen Hughes,
Tax Matters Partner
9781-96 River City Ranches #6, J.V., Joseph Sotro, Sr.,
Tax Matters Partner
14038-96 River City Ranches #4, J.V., Leon Shepard,
Tax Matters Partner
21774-96 Ovine Genetic Technology 1990, J.V., Leon Shepard,
Tax Matters Partner
3304-97 River City Ranches #3, J.V., Michael Dale,
Tax*291 Matters Partner
3305-97 River City Ranches #2, J.V., David Britton,
Tax Matters Partner
3306-97 River City Ranches #1, J.V., Stephen Hughes,
Tax Matters Partner
3311-97 Ovine Genetic Technology Syndicate 1987-1, J.V.,
Linda Routzahn, Tax Matters Partner
3749-97 River City Ranches #7, J.V.,
Tax Matters Partner
15747-98 Ovine Genetic Technology Syndicate 1987-1, J.V.,
Linda Routzahn, Tax Matters Partner
15748-98 River City Ranches #1, J.V., Stephen Hughes,
Tax Matters Partner
15749-98 River City Ranches #3, J.V., Michael Dale,
Tax Matters Partner
15750-98 River City Ranches*292 #2, J.V., David Britton,
Tax Matters Partner
15751-98 River City Ranches #4, J.V., Leon Shepard,
Tax Matters Partner
15752-98 River City Ranches #5, J.V., Stephen Hughes,
Tax Matters Partner
15753-98 River City Ranches #6, J.V., Joseph Sotro, Sr.,
Tax Matters Partner
15754-98 River City Ranches #7, J.V.,
Tax Matters Partner
19106-98 Ovine Genetic Technology 1990, J.V., Leon Shepard,
Tax Matters Partner
13250-99 Ovine Genetic Technology Syndicate 1987-1, J.V.,
Linda Routzahn, Tax Matters Partner
13251-99 Ovine Genetic Technology 1990, J.V., Leon Shepard,
Tax*293 Matters Partner
13256-99 River City Ranches #1, J.V., Stephen Hughes,
Tax Matters Partner
13257-99 River City Ranches #2, J.V., David Britton,
Tax Matters Partner
13258-99 River City Ranches #3, J.V., Michael Dale,
Tax Matters Partner
13259-99 River City Ranches #4, J.V., Leon Shepard,
Tax Matters Partner
13260-99 River City Ranches #5, J.V., Stephen Hughes,
Tax Matters Partner
13261-99 River City Ranches #6, J.V., Joseph Sotro, Sr.,
Tax Matters Partner
13262-99 River City Ranches #7, J.V.,
Tax Matters Partner
16557-99 River City Ranches #1, J.V., Stephen Hughes,
*294 Tax Matters Partner
16563-99 Ovine Genetic Technology Syndicate 1987-1, J.V.,
Linda Routzahn, Tax Matters Partner
16568-99 River City Ranches #5, J.V., Stephen Hughes,
Tax Matters Partner
16570-99 River City Ranches #3, J.V., Michael Dale,
Tax Matters Partner
16572-99 River City Ranches #4, J.V., Leon Shepard,
Tax Matters Partner
16574-99 River City Ranches #2, J.V., David Britton,
Tax Matters Partner
16578-99 River City Ranches #7, J.V.,
Tax Matters Partner
16581-99 River City Ranches #6, J.V., Joseph Sotro, Sr.,
Tax Matters Partner
17125-99 Ovine*295 Genetic Technology 1990, J.V., Leon Shepard,
Tax Matters Partner
1. The Appendix sets forth, for each of these consolidated cases, the docket number, partnership, and tax matters partner. By orders issued from June 22, 2000, through May 15, 2001, the Court removed Walter J. Hoyt III (Jay Hoyt), as tax matters partner in each of the consolidated cases. In those orders, the Court appointed a successor tax matters partner in each case.↩
2. The years at issue for River City Ranches #1 are 1986 and its years ended Sept. 30, 1991 through 1996. The years at issue for River City Ranches #2 are 1986 and 1987, its year ended Sept. 30, 1991, and its years ended Sept. 30, 1993 through 1996. The years at issue for River City Ranches #3 are 1986 and 1987, its years ended Sept. 30, 1989 through 1991, and its years ended Sept. 30, 1993 through 1996. The years at issue for River City Ranches #4 are 1984 and 1986, and its years ended Sept. 30, 1992 through 1996. The years at issue for River City Ranches #5 are 1986, 1987 and 1988, and its years ended Sept. 30, 1989 through 1996. The years at issue for River City Ranches #6 are 1986 and its years ended Sept. 30, 1992 through 1996. The years at issue for River City Ranches 1985-2/River City Ranches #7 are 1987 and 1988, and its years ended Sept. 30, 1989 through 1996. (In 1991, River City Ranches 1985-2 became known as River City Ranches #7.) The years at issue for Ovine Genetic Technology Syndicate 1987-1 are its years ended Sept. 30, 1990 through 1996. The years at issue for Ovine Genetic Technology 1990 (OGT 90) are 1992, 1993, 1994, 1995, and 1996.↩
3. River City Ranches #4, River City Ranches #6, and OGT 90 were the partnerships at issue in this test case. The taxable years decided were: For River City Ranches #4, 1987 and 1988, and its years ended Sept. 30, 1989 through 1991; and for River City Ranches #6, 1987 and 1988, and its years ended Sept. 30, 1989 through 1991. For OGT 90 the year decided was 1991.↩
4. The parties have resolved all of the adjustments in each notice of final partnership administrative adjustment issued to each of the nine sheep partnerships. Among other things, petitioners now agree that the sheep partnerships did not acquire the benefits and burdens of ownership of any sheep and that the promissory note each partnership issued in connection with its purported acquisition of sheep is not a valid indebtedness.↩
5. For a more detailed account of the Hoyt cattle operations and partnerships see Durham Farms #1,
6. In the River City Ranches #4 test case, Jay Hoyt maintained that OGT 90 in 1990 entered into sheep sale and share- crop management agreements with W. J. Hoyt Sons Ranches MLP, not with Barnes Ranch. However, during that test case trial, David Barnes testified that Barnes Ranch had sold OGT 90 its "breeding sheep". See River City Ranches #4,
7. The Bank of Alex Brown became the First Interstate Bank in 1989.↩
8. The unified partnership audit and litigation provisions of
9. The unified partnership audit and litigation provisions of
10. Ultimately, this Court, in Durham Farms #1,
11. The details of Jay Hoyt's criminal conviction and specific crimes for which he was found guilty are discussed supra pp. 28-30.↩
12. In this connection, Jeffrey Hull (the postal inspector who investigated Jay Hoyt and later worked with the prosecution team) testified that the criminal case focused on the cattle partnerships and not the sheep partnerships. Mr. Hull explained that his investigation had focused upon the cattle partnerships since they represented the majority of the investor partnerships, and that he and others saw no point in having to address collateral issues concerning the sheep partnerships.↩
13. Or. Rev. Stat.
14. Statements in a brief that are not supported by testimony or documents introduced at trial are not evidence. See
15. The specified unlawful activities used to establish money laundering at Jay Hoyt's criminal trial were mail fraud and bankruptcy fraud.↩
16. Certainly by 1993, the partners also knew or should have known that the IRS might: (1) Disallow the tax benefits that the Hoyt cattle and sheep partnerships and their partners claimed; and (2) attempt to uphold such disallowances and partnership adjustments in any tax litigation that the partnerships and partners commenced.↩
17. Petitioners concede that the alleged thefts were discovered at the earliest in 1997. See supra p. 66.↩
18. The period of limitations for a specific partner may also be extended by an agreement between the IRS and that partner. See
19. Temporary regulations under
20. This temporary regulation concerning criminal tax investigations applies to partnership taxable years beginning after Sept. 3, 1982. See
21. The
22. The Taxpayer Relief Act of 1997 (Relief Act 1997), 111 Stat. 788,
*. River City Ranches 1985-2, J.V., was formed and began operating in 1987. In 1991, the partnership became known as River City Ranches #7, J.V.↩
Bailey v. United States , 927 F. Supp. 1274 ( 1996 )
National Labor Relations Board v. Donna-Lee Sportswear Co., ... , 836 F.2d 31 ( 1987 )
Samuel Anderson and Mary Anderson v. Commissioner of ... , 62 F.3d 1266 ( 1995 )
Transpac Drilling Venture 1982-12, Guy J. Cutili v. ... , 147 F.3d 221 ( 1998 )
Joseph M. Irom v. Commissioner of Internal Revenue , 866 F.2d 545 ( 1989 )
madison-recycling-associates-david-a-beldon-robert-t-boyd-douglas-c , 295 F.3d 280 ( 2002 )
David E. Heasley and Kathleen Heasley v. Commissioner of ... , 902 F.2d 380 ( 1990 )
William Edwards v. Aetna Life Insurance Company , 690 F.2d 595 ( 1982 )
Hyman S. Zfass v. Commissioner of Internal Revenue , 118 F.3d 184 ( 1997 )
Grady Allen v. Zurich Insurance Company , 667 F.2d 1162 ( 1982 )
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Richard J. Todd and Denese W. Todd v. Commissioner of ... , 862 F.2d 540 ( 1988 )
Alvin v. Graff v. Commissioner of Internal Revenue , 673 F.2d 784 ( 1982 )
norfolk-southern-corporation-and-affiliated-companies-norfolk-western , 140 F.3d 240 ( 1998 )
Joseph F. Purcell, Plaintiff-Counter-Claim-Defendant-... , 1 F.3d 932 ( 1993 )
John B. Gainer v. Commissioner of Internal Revenue , 893 F.2d 225 ( 1990 )
In the Matter of Thomas v. Cassidy, Debtor-Appellant , 892 F.2d 637 ( 1990 )
James L. Rose and Judy S. Rose v. Commissioner of Internal ... , 868 F.2d 851 ( 1989 )
James B. Thomas, Plaintiff-Appellee/cross-Appellant v. ... , 166 F.3d 825 ( 1999 )
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