did the IRS lead prosecuting attorney in the Hoyt case
quit in disgust?
The Hoyt Fiasco: Timeline
Hundreds of former Hoyt investors face financial
ruin because of the fraud perpetrated by Jay Hoyt. In addition to the lost investment,
punitive interest and penalties levied by the IRS are forcing many into
bankruptcy. Below is a timeline of how it happened.
But first, watch this video:
First cattle partnerships formed in California. Walter
Jason (Jay) Hoyt III and father sued by First Security Bank of Elk Grove for allegedly
submitting fraudulent loan applications in the late 1960s. Bank was awarded $113,000.
Hoyt's father dies, family continues in shorthorn
business and begins selling more partnerships.
Hoyt family begins buying property near Burns, Ore.
Hoyts have gained reputation for raising high-quality shorthorn cattle.
Hoyt passes test and becomes enrolled agent of IRS. He
prepares tax returns of investors through his tax office, and assigns them cattle-raising
expenses as deductions to generate big tax refunds.
Audit shows that Hoyt has 1,000 fewer cattle than he
has sold to investors. Hoyt blames the shortage on venereal disease, but decides to not
replace the missing cattle. By 1982, the shortage is almost 3,000. IRS, suspecting fraud,
begins annual audits of Hoyt partnerships.
Internal Revenue Service begins investigation of Hoyt
Hoyt appoints himself as tax matters partner for all
his partnerships. The number of cattle-breeding partnerships has grown to 24. Hoyt files
to sell Individual Retirement Account securities as Hoyt & Sons Ranch Properties in
Oregon., but doesn't answer regulators' questions so isn't licensed.
Even though Hoyt is not licensed to sell securities in
Oregon, he sells the Burns-area Durkee Ranch to Ranch Properties (IRA) investors for $3.1
million - a significant profit from the $1.8 million his brother Ric bought it for a year
earlier. A later appraisal showed the property was worth only $900,000.
IRS agents refer Hoyt case to Criminal Investigation
Division to begin preparing a case for allegedly overstating cow numbers, the cows' values
and farm-related expenses. Special Agent Larry Sidner recommends prosecution. Request is
rejected by U.S. Attorney.Hoyt remains Tax Matters Partner and retains Enrolled Agent
IRS attorneys again recommend to Department of Justice
that Hoyt be prosecuted for assisting in preparation of false and fraudulent returns.
Despite those concerns, IRS also allows him toremain as enrolled agent and tax matters
partner for all partnerships. Hoyt goes to trial in tax court. Afterward, he sends
letters to investors telling them not to worry about outcome of the case, but agrees in
court documents after trial that partners were not "at risk" of losing property.
That meant partners would face huge penalties. To boost the supposed value of his cattle,
Hoyt allegedly arranges several "shill" sales at auctions. Hoyt either pays
money or trades cows to offset the cattle sales prices. Tax Reform Act of 1986 passes and
affects partnerships, so that only "active" partners can deduct expenses. Hoyt
sends letter interpreting the new tax law, misleading investor-partners and telling them
they only need to talk among themselves or recruit new partners to satisfy the new
Hoyt operation reaches its peak, with cattle on more
than 500,000 acres, a fleet of 42 trucks and about 200 employees. Justice Department
declines to prosecute Hoyt.
Hoyt family signs agreement to liquidate Hoyt &
Sons Ranches and divvy up more than an estimated $3 million worth of investor-bought
assets including cattle, trucks, farm machinery and even money. IRS notifies Hoyt he is
under investigation for preparing fraudulent tax returns, but drops threat of penalty in
return for Hoyt's cooperation in conducting audits of partnerships. The number of Hoyt
partnerships has climbed to 72.
US Tax Court issues decision in Bales case, in which
the Judge said Hoyt partnerships in 1977 through 1981 were not shams and legal under the
laws of the time. The decision is hailed as a victory by Hoyt, who begins sending copies
of the decision in packets to investors.
Oregon securities examiners get complaint about
possible violations relating to Hoyt IRA plan.
Federal judge orders Hoyt to allow IRS to perform
cattle and sheep counts and inspect his cattle records.
IRS makes settlement offer to all Hoyt investors based
on concessions by Hoyt in Bales case. This letter is the first indication to most
investors that the big "win" in Bales case was for Hoyt, not for individual
partners. Sales efforts continue unabated. Hoyt produces 39-page booklet entitled
"Harvesting Tax Savings by Farming the Tax Code."
Investor Rodney Moore leads 162 investors in suit
against Hoyt in Sacramento, alleging securities fraud and racketeering. Case doesn't go to
trial. A group of California investors begins negotiations with IRS with the hope of
reaching a settlement. Committee gets agreement from Hoyt that he will pay fines and shut
down partnerships. Settlement would have resulted in $25 million in revenue collection but
IRS lawyers refuse to sign.
IRS cattle count, when finished, shows that Hoyt owned
4,764 mature breeding cows, and 7,903 total. In contrast, a count by a Hoyt worker
indicated Hoyt owned 26,205 cattle. Hoyt signs stipulation of facts with IRS, agreeing
that some investor money raised through IRA did not go to ranch improvements and was used
for family and other expenses. Hoyt remains Tax Matters Partner and retains Enrolled
Hoyt signs memorandum of understanding admitting
investors deducted expenses for too many cows from 1981 to 1986. That makes them
responsible for millions in taxes and penalties, yet reduces the Hoyt family's tax
liability by millions. Nothing more is heard of IRS criminal investigation.
U.S. Postal Inspector receives word that Hoyt may be
operating a fraud based on selling livestock partnerships. FBI joins inquiry.
IRS begins seizing bank accounts and putting liens on
houses of Hoyt investors. Hoyt settles lawsuit filed by ex-worker by giving away more than
500 investor cattle. IRS files liens in Deschutes County for $10 million, and for $1
million in Oregon City. The agency seizes Hoyt's Burns hilltop home, valued at $342,000,
to sell at auction.
Hoyt and his relatives submit the top bid for the Burns
home at auction, bidding $60,100. The family never moved out. Hoyt files Chapter 11
bankruptcy for IRA fund, believing it would allow Hoyt to reorganize his debts and keep
the ranch property. But it doesn't work.
Bankruptcy Judge Elizabeth Perris appoints a
trustee to liquidate the assets. Based on information gleaned by FBI and Postal
inspectors, agents raid several Hoyt offices in Burns. The search yields about 208 boxes
of records, or about 500,000 pages. A Louisiana court approves a $11 million judgement
filed against Hoyt by 13 investors.
Hoyt ordered to repay $1.3 million for defaulting on
loan payments. IRS liens against Hoyt have climbed to $63.6 million. Hoyt testifies in
"Durham Farms" tax court case that herd size is 17,000 to 18,000.
Louisiana investors, who have not yet been paid the $11
million, file involuntary bankruptcy against Hoyt cattle partnerships. More than 1,000
investor cases are pending in tax court. Hoyt conceals more than $1.6 million in investor
payments from bankruptcy trustee. Also, Hoyt worker sends letter telling investors to send
checks to new Hoyt entity, allegedly to prevent the money from reaching bankruptcy
trustee. Finally, Hoyt's IRS enrolled agent license revoked. He remains the tax matters
partner for virtually all partnerships.
Hoyt claims 11,090 cattle still belong to the Hoyt
partnerships, but he reveals in a deposition that most are owned by other people. Hoyt
sends letter telling few remaining partners to pay more or face losing cattle. Trustee
auctions about 1,100 Hoyt cows near Fresno. The cows, which Hoyt has sold to his investors
for $4,000 or more apiece, sell for about $700 each.
Hoyt continues shifting money and
assets between varied businesses. Bankruptcy trustee closes Hoyt office and combines all
Hoyt livestock and operating entities into one single case, which finally shuts him down.
Grand jury indicts Hoyt and others for conspiracy, mail fraud and money laundering. Hoyt
and four others arrested. IRS removes Hoyt as tax matters partner from some partnerships.
In the wake of growing outcry by Hoyt investors, IRS
idles collection efforts. Revised Hoyt indictment adds new charges and a new defendant.
Group of investors files suit against Hoyt and IRS for $100 million.
Durham Farms tax court decision released. Judge says
investors can't write off any cattle-raising expenses for 1987 to 1992, because it is
unclear whether Hoyt even had the cattle to sell them. Federal judge tells IRS and
partnership attorneys to work out final settlement. Several hundred cases still are
pending in tax court. Hoyt family agrees to turn over home in Burns and $119,624 in
cashiers checks as part of bankruptcy settlement.
Walter J. Hoyt III and 2 co-defendants are found guilty
of mail fraud, money laundering and conspiracy. To date, Hoyt has not been arrested for
any tax related criminal charges. He remains the tax matters partner for most of the
partnerships. Hundreds of investors face huge tax bills they have not hope of being
able to pay.
Appeals Officer William McDevitt made the following comment
in a memorandum December 23, 1997:
"It seems to me that proposing penalties against these
investors would only be likened to pouring salt into their open wounds; and not only that,
it would do nothing more than to anger them; it would amount to adding mere numbers to
already uncollectible accounts. In other words, it serves no useful purpose and, where we
have discretion as to whether these penalties should be imposed, we should exercise that
More damning is a voluminous report prepared by 26 year IRS
veteran Richard Pooley.
Mr. Pooley was Chief, IRS Collections & Taxpayer
Service Division, Sacramento, CA when he retired in 1989. In that report prepared
for the Senate Finance Committee and the House Ways and Means Committee, Pooley documents
14 allegations of IRS misconduct and strongly urges that Congress instruct the General
Accounting Office to investigate the 17 year conduct of the Hoyt related audit project.
Had a private citizen or organization been aware of Hoyt's illegal
activities and not reported them to a law enforcement agency, they would be accessory and
equally guilty of the crime. It is exceedingly difficult to bring such charges
against the IRS.
Walter J. Hoyt has been convicted of fraud and died in prison. At the time
Hoty was sentenced, there were 1,000 cases pending in tax court. The IRS
refused to negotiate an equitable settlement, even when the request came from the presiding
The tax court case are completely unnecessary. Investor/Partners do not challenge the fact Hoyt prepared fraudulent partnership tax
returns and deduction taken should not be allowed. The tax court cases are
addressing the punitive interest and penalties assessed by the IRS. There is no need
for these court cases. Congress enacted Alternative Dispute Resolution to
address situation where the law and the punitive power of the IRS have been abused.
Congress has taken no action to oversee the
actions of the IRS or to direct the IRS to use Alternative Dispute Resolution to
finally bring this fiasco to an end. Tell your member of Congress that allowing
criminals like Kevin Brown to function with impunity is not acceptable.
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.