Hoyt Fiasco: $103M Heist + Kevin Brown's Criminal Cover-up
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     Why did the IRS lead prosecuting attorney in the Hoyt case quit in disgust?

The Hoyt Fiasco: A Few Words from the IRS

Here is a letter from the IRS--our posting this shows we want to present a fair and accurate picture. The IRS is always welcome to post their opinions on this site.

However, we have substantial documentation to show this IRS letter is full of inaccuracies.

To read the truth, read the Pearson Letter.


General Information Regarding Hoyt Partners

Many investor in partnerships promoted by Walter J. Hoyt during the 1970's, 1980's, and 1990's have been writing to their Congressman, Senator Roth and Secretary of the Treasury, Robert Rubin. Since these taxpayers reside all over the country, we have attempted to provide you with a history of the actions taken in the Northern California District regarding the "Hoyt" partnerships.

Previous correspondence from partners stated the Internal Revenue Service (IRS) was harassing the partnerships because they won a Tax Court case referred to as the "Bales Ruling" (TC Memo 1989-568). They have also used this ruling as an approval of the shelter for investment purposes. The Bales ruling related specifically to investments prior to 1980. In this case, one of the issues before the Court was whether the activity was engaged in for profit. Because the Tax Court found the partnerships to be a bonafide business, the investors claimed they had won the Case. They failed to recognize that the Tax Court decision also found that deductions and investment credits were overstated.

In the early 1990's we received correspondence from investors stating the IRS was attempting to pressure taxpayers into accepting Settlement Agreements and were attempting to circumvent due process. The allegations arose due to an Appellate Opinion [Treaty Pines Investment Partnership v. Commissioner, (1992, CA5) 967 F2d. [206], in which the IRS was instructed to assess additional taxes within one year from the date the taxpayers indicated they wished to settle their case. Due to this decision, the IRS must assess tax in accordance with the Settlement Agreement once partners indicate their wish to settle their case, even though their partnership may be before the court pursuing litigation.

Many of the partnerships failed to file timely returns for the years ending 1990 and 1992, and delinquency penalties were imposed on the partnership accounts for failure to file timely returns. Attempts were made to collect the penalties from the partnership.

However, since the penalty liability is considered to be a joint debt, All parties in the partnerships may be pursued for collection. Notices of Intent to Levy were issued to the general partners by certified mail prior to seizure of any accounts.

In 1994, taxpayers identified as partners in tax shelter Hoyt partnerships were issued Pre-Filing Notices in accordance with Revenue Procedure 84-84. These notices advised taxpayers that refunds claimed on Federal income tax returns would be reduced the amount generated from claimed deductions and/or credits from any Hoyt partnership tax shelter. These refunds were to be withheld until it was determined the partnerships were in compliance with the tax laws.

After receipt of the Pre-Filing Notices, some of the partners filed new Forms W-4, Employee's Withholding Allowance Certificate, which included excessive allowances based on the partnership deductions and/or credits. These Forms W4 were filed to purposefully circumvent the effect of the previously issued Pre-Filing Notices. Therefore, it was determined that they did not meet the requirements of Internal Revenue Code (the Code) section 3402 and related Employment Tax Regulations. Thus, their employers were directed to disregard the subsequently filed Forms W-4 and to withhold at the 'Single' rate with zero allowances.

Although there were no formal or administrative procedures for appealing the IRS decision concerning the withholding allowances the taxpayers were able to request. a redetermination. Upon the taxpayer's request, they were allowed a reasonable amount of allowances, once proper substantiation was provided.

In general, the partners claimed losses, deductions and investment credits that reduced or eliminated their tax liabilities and created net operating losses, which were carried back to prior years. Many of the investors argue that they believed their investments were legitimate because the IRS allowed Mr. Hoyt to continue to carry on business. Many of the partners have expressed their anger and frustrations over the continuation of the partnerships. Although the IRS is mandated by Congress to take appropriate action against the promoters of abusive tax shelters, Code section 6103 protects the results of such actions from being disclosed.

Many partners have also expressed frustration regarding the liens filed on their property due to their enormous tax liabilities. The IRS contacted all partners of record to advise them of the position the IRS was taking, and in most instances, we offered a Settlement Offer, prior to court proceedings. The liens were filed in accordance with Code section 6321, to protect the Government's interest and can be released when the tax liability covered by the lien is fully satisfied.

Many of the investors have petitioned Bankruptcy Court, which can complicate matters. It is possible that an investor may have certain tax years settled due to a Memorandum of Understanding or Settlement Offer, while other tax years are before the Tax Court for TEFRA issues, and still other tax years are before the Tax Court for Non-TEFRA issues.

After 1986, all of the Hoyt partnerships are TEFRA partnerships. However, once a taxpayer petitioned Bankruptcy Court, they "fell out" of TEFRA proceedings and are no longer bound by the decisions of the Tax Matters Partner. Prior to October 21, 1994, the IRS was not able to assess any taxes during the time the taxpayer was before the Bankruptcy Court. The Statute of Limitations was suspended from the date the taxpayers filed their petition until the case was either dismissed or discharged. After October 21, 1994, the IRS must assess [tax] within one year of the taxpayer's petition filing date.

Recently, the Bankruptcy Court ruled that certain settlement agreements entered into with partners, who were before Tax Court, were invalid because the agreement (Form 906) was signed by the Associate Chief of Appeals, whom the Bankruptcy Court determined did not have the authority to execute. Because the Bankruptcy Court found the settlement agreement (Form 906) to be invalid, the assessment was determined to be erroneous and could result in barred assessments. If the Court ruling is upheld in future litigation, the assessments made prior to a Court decision would be erroneous. Although this Bankruptcy case was not appealed, the IRS does not agree with the decision. Future litigation brought about by this decision may result in our (IRS) appeal.

Forms 906 settlement agreements have been entered into after Court Decisions have been entered. In these cases, the Forms 906 are considered as claims and are sent to the Ogden Service Center for recomputation of the tax liabilities.


Prepared by:

Internal Revenue Service
Office of the District Director
4330 Watt Avenue, SA-5340
N. Highlands, CA 95660

Last updated: Friday, October 09, 2020

Questions, problems? Want to render assistance?
Write to hoyt @mindconnection.com (paste this address into your e-mail program, and delete the space).

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Disclaimer: The facts represented here are as accurate as a reasonable investigation can determine. Mindconnection hosts this site at no charge to the Hoyt victims, to expose this miscarriage of justice.