Also read: The
Norm Johnson Tapes
Bad Faith Memo
Second Stipulation of Facts
Here, we present some scraps of evidence, to give you a feel for the
larger body of evidence we have on hand. This evidence exposes the Hoyt Project for what
it really is. If you are prone to nightmares, don't read this before bedtime....
11/27/85 Transcript/Criminal Investigation
Statement of David L. Howe with Larry Jay Sidner, Special Agent
Mr. Howe, you have been wished to give testimony tonight regarding the investigation of
Walter J. Hoyt, III doing business as various partnerships in Elk Grove area for years
1981, 82, 83, and 84.........
5/16/85 Memo/Criminal Investigation
From: Larry Jay Sidner, Special Agent
To: Arthur Hill, Partner
This office is investigating allegations of possible criminal violations of the
Internal Revenue Laws by Walter J. Hoyt III of Elk Grove, California for years 1983 and
1984......
Relating to 1985 - 1989
United States District Court
The District of Oregon
Deposition and Rule 2004, Examination of Walter J Hoyt. III
April 29, 1998
Q. Did you ever become aware at any point that you were under investigation by the
Internal Revenue Service?
A. Yes, I did.
Q. When did you first become aware of that?
A. I think it was 1984 or 1985 that I was first contacted by an IRS special agent.
Q. Were you ever told that a grand jury had been convened to investigate your conduct?
A. Yes.
Q. When was that?
A. In 1989.
Q. What was the agent's name, if you recall?
A. Larry Sidener.
Q. The investigation that began around 1984 or 1985 was the same investigation that was
going on in 1989, or was it a new one? Or do you know?
A. Well, it was the same person. It was Larry Sidener. I believe it was the same one.
Q. Were you ever told of the outcome of the investigation?
A. No
Q. Did anyone from the Internal Revenue Service at any time tell you that your
partnership items were being converted to nonpartnership items?
A. Well, they did it, and the district counsel in Sacramento tried to file some
notices in the tax court cases saying that I had done it, and the tax court denied those
notices, But that in fact is what was done to me.
Q. And the IRS has never suggested to you that you should not be a tax matters partner
in general for all of these partnerships, has it?
A. No, it has not.
Q. It has never made any effort to remove you as a tax matters partner other than these
few cases you mentioned?
A. Yes. That's correct.
Q. And the IRS never suggested during the curse of the investigation from 1984 to 1989
that because of that investigation you should not be tax matters partner, did it?
A. No.
Q. In connection with those same years, '83 through '86, you also executed on behalf of
partnerships extensions of the statute of limitations, did you not?
A. I know I executed statute of limitations for the partnerships and my personally
from '87, '88, I believe '89, but I'm not as positive as I am about '88 and '87, and I
can't remember about '90. I t seems that starting about that time I didn't sign any more
extensions.
Q. With regard to the years affected by the memorandum of understanding, did you
execute extensions for those years, too?
A. I believe I did. I can't find it specifically in my mind, but I believe I did sign
statute of limitations for 83, "84, '85 and '86
Q. And at any time in your discussions with representatives of the Internal Revenue
Service, did any of them question your capacity to enter into an agreement extending the
statute of limitations on behalf of any partnerships?
A. No. I don't recall any conversations concerning that whatsoever. Frankly, what I do
recall is when we agreed to do it, we did it fast because we were--they didn't want to
issue the 90-day letters and I didn't want to file any more petitions.
Q. So no one from the IRS has never told you that as a result of the criminal
investigation of you or any of your conduct that you were not qualified to remain as TMP
in any of these partnerships, correct?
A. I have no memory of them notifying me of that. No.
7/2/89 Memo/Criminal Investigation
From: Blake Olson, Revenue Agent
To: District Counsel, Sacramento District
Subject: FBI Contact Regarding the Hoyt Case
Per last week's conversation, I am documenting my contacts with the FBI regarding
Walter J. Hoyt, III and his cattle partnerships....
FRAUD REFERRAL I.R.C. SECTION 7208(1) and (2)....
Conclusion:
Mr. Hoyt has grossly violated his fiduciary responsibilities to his investors and
clients.......
All of the necessary elements needed to prosecute Hoyt for the 7208(1) penalty are in
place. Hoyt knowingly prepared documents that were false in a material manner......
Read Drobny's Bad Faith
Memo (1992)
3/6/93 Form 872-P / Consent to Extend the Time to Assess Tax
Attributable to Items of a Partnership Signed by Jay for years 1987, 1988 and 1989
5/20/93 Memorandum of Understanding
Agreement between:
Walter J. Hoyt III, General Partner/Tax Matters Partner
R.M. Spooner, Associate Chief, Sacramento Appeals Office
Subject:
Understanding of the Bales for Settlement of Cases Involving Hoyt Cattle
Partnerships for the years 1980-1986.
10/24/95 Memo / State of California Department of Justice
From: Daniel E. Lungren
To: Sal Canella, California Legislature
...Nonetheless, I was assured that the U.S. Attorney in Oregon, the criminal division
of the Internal Revenue Service and the U.S. Postal Inspector were actively pursuing their
investigation for violations of mail and wire fraud, money laundering and fraud against
the U.S. Government….
1995 Second Chance Settlement Offer
From: William E. McDevitt, Appeals Officer, Sacramento CA
To: Richard L. Pooley, Attorney for a group of Partners
...This will be a binding settlement only if the investor signs a closing Agreement,
Form 906 and we counter-sign it on the behalf of the Commissioner. When we sign the
closing agreement, the one-year period of limitations on assessments will begin under
I.R.C. § 6229(f).
Since these penalties are collectable from either the partnership or any general
partner, and since Jay converted all the limited partners in post 1986 years to general
partners, we can reasonably look to any of them for satisfaction of the liability.
However, we will only look to the partners who continue to participate in the Hoyt
program.
3/13/98 United States Tax Court
Phillips v. Commissioner Docket: 9354-96, Hoyt Farms
Judge Goldberg
ORDERED that respondent (IRS) is required to disclose the following;
1. That the Service never provided Walter J. Hoyt III with written notification that
his partnership items would be treated as non-partnership items.
2. That the Internal Revenue Service Examination Division referred a case involving
Walter J. Hoyt III to its Criminal Investigation division on April 23, 1984.
3. That the Criminal Investigation Division accepted the referral, and on April 24,
1984, assigned the investigation to a special agent.
4. That the Criminal Investigation Division referred the case to the Internal Revenue
District Counsel on April 21, 1986, recommending that Walter J Hoyt III be prosecuted
under Section 7206 (2) for aiding and assisting in the preparation of false and fraudulent
income tax returns for 12 individuals, none whom were petitioners in the present case, by
advising them that although they did not join partnerships (which were promoted and
operated by Mr. Hoyt) until 1984 they could deduct partnership losses on their 1983
returns.
5. That District Counsel referred the case to the Department of Justice on July 31,
1986, with a recommendation for prosecution.
6. That the Department of Justice declined prosecution of the case on August 12, 1987.
7. That in October or November of 1989, the Department of Justice approved the
assistance by the Criminal Investigation Division in a grand jury investigation of Walter
J. Hoyt III.
8. That the Internal Revenue Service Regional Counsel's Office was informed on or about
November 19, 1991, that the Criminal Investigation Division's participation in the grand
jury investigation had been terminated.
9. That the Criminal Investigation Division can locate no records with respect to this
case, and, except for a pro forma closing letter, the Regional Counsel's Office retained
no records of this case.
6/26/98 U.S. 2nd Circuit Court of Appeals
Transpac Drilling v V. CIR Dockets: 95-4177(L), 95-4179
Judge Calabresi 95-4183, 95-4185, 95-4187,
95-4193, 95-4195, 95-4197,
95-4199, 95-4230, 97-4213,
97-4219 (CON)
Transpac Drilling Venture 1982-12, et al., (Petitioners-Appellants)
v.
Commissioner of Internal Revenue (Respondent-Appellee)
Seventy-one partnerships (the "Transpac partnerships"), each containing 30-50
limited partners,...the government has alleged that the function of the Transpac
partnerships was to serve as illegitimate tax shelters for their limited partners....
...Under TEFRA, when the IRS wishes to deal with questions that affect the entire
partnership, it may consult an entity called the "tax matters partner" (TMP),
who has the authority to serve as the partnerships' representative to the IRS and, in some
matters, to bind the limited partners by its actions....
In the latter part of 1983, the IRS began a series of civil audits of the Transpac
partnerships. By 1985, apparently in conjunction with information gleaned from an FBI bank
fraud investigation....
During the spring of 1986, as the various criminal investigation efforts continued....
...the Service originally (in November of 1985) sought extensions from the individual
partners. Most of those who were contacted declined the IRS' request. Having been rebuffed
by the limited partners, the IRS, in February 1986, began to contact the TMPs--who by this
point were under criminal scrutiny--and asked them to approve extensions on the three-year
statute of limitations. Not surprisingly, this solicitation was received more warmly....
A.
First, the respondent suggest that the TMPs, as "creatures of statute," exist
solely at the pleasure of the Secretary and owe no fiduciary duty to the limited partners.
This is contrary to settled law.... We conclude that the TMPs' duty to the individual
limited partners and to the partnerships in general is beyond question.
B.
The second argument advanced by the Commissioner is that any conflict of interest is,
in this case, harmless, because a fully competent fiduciary would most likely have
executed the extensions sought by the IRS. The assertion is frivolous. Even assuming,
arguendo, that the government's proposition might be true in some cases, it is manifestly
false in this appeal......
Criminal investigations (Temporary)
The treatment of items as partnership items with respect to a partner under criminal
investigations for the violation of the internal revenue laws relating to income tax will
interfere with the effective and efficient enforcement of the internal revenue laws....
We therefore conclude that where serious conflicts exist, a TMP may be barred from
acting on behalf of the partnership....
C.
The facts of the matter speak for themselves. The IRS had transformed the civil audits
of Transpac partnerships into criminal investigations....
III.
...Finally, and most important, we emphasize that, notwithstanding the inapplicability
of the Criminal Investigations Regulation to this case, the Secretary undoubtedly has the
authority under the Special Enforcement Provision of TEFRA to promulgate reasonable
regulations providing for the removal and the replacement of TMPs in the event that a
conflict of interest develops....
IV.
We hold that Tax Court erred in finding that, in the circumstances before us, the TMPs
could validly execute extensions of the three-year statutes of limitations (or, more
precisely, that the Tax Court erred in finding that the IRS's decision not to invoke the
Criminal Investigations Regulation foreclosed in finding that the TMPs were precluded from
extending the statutes)....
REVERSED AND REMANDED
11/24/98 United States District Court
District of Oregon, Criminal Case No. 98 529-30
Indictment:
18 U.S.C. § 371
18 U.S.C. § 1341
18 U.S.C. § 2
April Barnes
David Barnes
David Cross
Walter J. Hoyt III
Darrel Smith
Beginning not later than 1982, and continuing to the present, the defendants, led by
Walter J. Hoyt III (Jay Hoyt), conspired to defraud thousands of Investors out of more
than $100,000,000....
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