Abusive Shelter?

The Hoyt partnerships were not abusive tax shelters, and Tax Court rendered no ruling that they were. Here's one definition a Google search turned up (source: Missouri Dept of Revenue, discussing its agreements with the IRS):

"Abusive tax shelters are transactions promoted for the promise of tax benefits with no meaningful change in a taxpayer’s income or assets. These transactions typically have no economic purpose other than reducing taxes with predictable tax losses or tax consequences."

You will find similar definitions in other authoritative sources.

The Hoyt investors bought real property, took real losses, had real out of pocket expenses, and materially participated in their partnerships. Jay Hoyt and Dave Barnes committed fraud and went to prison for those crimes. The only "abuse" has come from Hoyt, Barnes, and IRS employees.

Yes, there was a tax-favored element--by definition, a shelter. Some IRS employees have present the image that the Hoyt victims were rolling in money due to not paying federal income tax. But, as Judge Jones found after an extensive hearing of this case, the reality was quite different. The investors, even with the tax favored treatment, had much less money in pocket than if they had not invested with Hoyt at all.

Some IRS employees have claimed that the Hoyt victims were clever tax cheats who "deserve whatever they get" (a direct quote from IRS honcho Kevin Brown, whose attitude caused IRS lead prosecutor Ann Murphy to quit her IRS job in disgust). There is no basis for the idea that the Hoyt victims were tax cheats by virtue of trusting Hoyt or of trusting written communication from the IRS itself. Or for any other reason. It's simply a false accusation, with no merit and no substantiation but plenty of evidence to the contrary.

This hasn't stopped Brown, et al, from making a point of publicly casting the Hoyt victims as tax cheats. One of their claims has been that anyone involved in any tax sheltering activity must be a tax cheat. They know better than this but have implied or directly stated it anyhow.

Tax shelters are not illegal. In fact, the IRS even has forms and instructions for running them! Tax shelters exist for a variety of reasons. There is nothing inherently bad about them, regardless of Mr. Brown's spin on things.

In the Hoyt situation, there was abuse, but that did not make this an abusive tax shelter. The abuse was purely on the part of Hoyt and those who conspired with him. None of it was on the part of the 4300 victims whose savings Hoyt stole and whose lives have been subsequently shattered by a conjured up "tax on theft" that the IRS has managed to impose on them and aggressively pursued in a destructive and unproductive vendetta that has already cost the US Treasury far more than IRS can possibly collect from the Hoyt victims but is being pursued anyhow.

Some talking points on this issue include:

• Hoyt investors did not send themselves documents on IRS letterhead from IRS offices claiming the IRS had looked into the Hoyt operations and there was no problem with the Hoyt operations and no personal liability would accrue to said investor. IRS employees did send out such documents.
• Hoyt investors did not sell themselves the same property several times over (similar to selling many people the same title to the same car). Hoyt sold the same property to multiple parties, and those parties had no knowledge this was being done.
• Hoyt investors did not file false partnership returns. Hoyt did.
• Hoyt investors did not review those partnership returns and send out written notices to Hoyt investors that "the Hoyt entities have been examined" and "no additional personal tax liability will arise from them." IRS employees did.
• The Hoyt victims did not seek to avoid taxes. Hoyt did. The Hoyt victims thought they were investing in a business that used tax deferral, and that taxes would be due. This aspect was detailed in Hoyt's promotional literature, and it's one reason why the partners would invest further once they were in.

The bottom line here, as many IRS Appeals Officers and other have been telling individual Hoyt victims, is the Hoyt investors did nothing wrong. This is why Judge Jones rebuked the IRS for its horrendous mishandling of this case and for its totally inappropriate aggressiveness toward people who are victims of both Hoyt's actions and those of the IRS (whether malfeasance or incompetence has not been officially determined).

See also The Hoyt Fiasco: Outline.

Last updated: Friday, October 09, 2020