Hoyt Fiasco: Drobny's Bad Faith Memo

7/22/92 (Excerpts Only)(Settlement Committee Efforts)

Memo from Drobny Law Office (partners settlement committee attorney)

To: Raymond Spillman (District Director, Internal Revenue Service).

Thank you for your letter of July 16, 1992, responding to my letter of June 19, 1992. Unfortunately, your letter raised some serious concerns on my part which I will outline below.

My initial contact with Chris Coones of Appeals appeared to be promising: Mr. Coones indicated to me that this is what he had hoped for, for the past two (2) years: face-to-face negotiations with Hoyt Investors, independent of Walter J. Hoyt, III.

All of this time and resources were invested in a good faith attempt to come to a complete resolution, in reliance on the IRS dealing in good faith.

Unfortunately, it is now clear that the IRS was not negotiating in good faith. In fact, it is now clear that while the IRS has purported to be "negotiating" with my clients, the IRS’s intent all along has been to accept nothing less than the terms of their current offer.

That is not negotiating- what does the IRS think my clients will do, enter into negotiations that result in their paying more?

Evidence of (2) above is clear. On June 11, 1992, my clients essentially had the door slammed in their face.

Suddenly, discussions began anew!

Again, we secured Mr. Hoyt’s comments to meet face-to-face with the Appeals personnel on Friday, July 17, 1992.

Then, after my clients secured those commitments from Mr. Hoyt, William McDevitt prepared a letter to the investors dated the day before Mr. Hoyt’s scheduled meeting advising all of the investors that the Settlement Committee’s offers and efforts are unacceptable and that the investors have to either accept the current IRS offer, or go to trail. In addition, Mr. McDevitt did not ever have the courtesy of advising the Committee that he was terminating negotiations, before mailing his letter dated July 16, 1992 to all Hoyt Investors.

In conclusion, it certainly appears that my clients were not dealt with in good faith, and in fact, were used to pressure Jay Hoyt into settlement.

Very truly yours.

Mark S. Drobny

7/24/92

LETTER OF INTENT

I WALTER J. HOYT III, hereby state that:

I am the Tax Matters Partner for the Hoyt Partnerships involved in the litigation currently pending before the United States Tax Court.
I understand that the Hoyt Partners’ Settlement Committee is negotiating with the Internal Revenue Service on behalf of investors in Hoyt Partnerships to settle all tax issues for all good faith partners in all Hoyt partnerships for all tax years through 1991.
If the Settlement Committee reaches an agreement with the Internal Revenue Service on a settlement, then I as Tax Matters Partner and General Partner will agree to:

Sign the Settlement Agreement in my capacity as Tax Matters Partner for the Hoyt Partners.
Assist in securing the acceptance of this offer by the pre-TEFRA partners.
Not provide any legal counsel via the partnerships on behalf of any partner for any Tax Court litigation.
Refrain from marketing any type of "tax shelter" in the future.
Surrender my Enrolled Agents License.
Make available all partnership records to determine amounts invested by the partners.
Be assessed preparer penalties under IRC Section 6701

(Signature)

Walter J. Hoyt III

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The Hoyt Fiasco: Drobny's Bad Faith Memo