The Hoyt Fiasco: Judge rebukes IRS in Hoyt case

Judge rebukes IRS in Hoyt case

Published: June 20, 2001

By James Sinks , The Bulletin

PORTLAND — A federal judge on Tuesday called former Burns cattle king Walter “Jay” Hoyt III the “craftiest criminal” he’d ever seen — and sentenced him to almost 20 years in prison for bilking millions from investors in a nationwide tax shelter scam.

But the judge saved the last word for another key player in the long-running Hoyt saga: The Internal Revenue Service.

In an unusual rebuke, U.S. District Court Judge Robert E. Jones told the federal agency to ease up in its ongoing efforts to extract massive penalties and interest from Hoyt investors.

“Victims in this case truly were victimized by a person capable of the greatest deceitful practices,” he said. “My strongest recommendation is that those remaining cases be resolved.”

Although Judge Jones has no jurisdiction over the agency, he joins a growing chorus of voices that have expressed concerns about the IRS handling of the long-running Hoyt case and its aggressive stance toward investors.

Those critics include lawmakers including U.S. Sen. Ron Wyden, D-Ore., thousands of bankrupted investors and their families, former IRS employees and the postal inspector who helped bring Hoyt to justice.

The IRS says investors should repay all of the taxes they avoided when they claimed write-offs for the nonexistent cattle, plus penalties and compound interest going back to the 1970s in some cases.

Retired postal inspector Jeffrey Hull, who helped piece the Hoyt case together for eight years, said Tuesday he remains puzzled over the IRS’ continuing pursuit of people who were clearly fooled into thinking they were investing in real cows.

“I can’t understand the IRS position and why they insist on penalties and interest — but I’m not an IRS agent,” he said.

The IRS has repeatedly declined requests to comment on the Hoyt matter. Calls to the agency’s Seattle press office Tuesday went unreturned.

Even though Hoyt was convicted of 52 counts including mail fraud and conspiracy in February, the IRS maintains that investors were basically tax cheats, said Gary Blackburn of Orovada, Nev., a former investor who believes his tax debt could eventually top $1 million.

In most cases, those penalties dwarfed the amount of tax savings — and were responsible for driving many investors into insolvency.

Roughly a quarter of Hoyt’s investors haven’t yet settled, and their fates will be determined by a U.S. Tax Court trial scheduled to begin this summer.

In a telling disclosure, the IRS said in a May 25 filing that it still doesn’t believe investors were victims of fraud, Blackburn said.

“They say the allegations of fraud are ‘vague and ambiguous,’ ” he said. “There was a conviction, and they won’t even acknowledge it.”

Investors are willing to repay the taxes they avoided with the bogus write-offs, but want the agency to reduce the interest and penalties. That’s also the scenario endorsed Tuesday by Jones.

But investor advocate Joyce Heard of Ceres, Calif., who has settled her case with tax collectors, believes it will take an act of Congress to get the IRS to back off of Hoyt’s victims — and hopes the judge’s remarks have some impact.

“The IRS is never going to do anything on their own,” she said.

Investors believe the IRS targeted them because the agency was never deft enough to stop Hoyt.

The agency also failed to shut Hoyt down or yank his “enrolled agent” tax license for years, even though agents were investigating him for fraud.

Hoyt and his family, meanwhile, say IRS agents acted like “stormtroopers” in their efforts to undermine the business and drive it into ruin.

“The IRS engaged in not just aggressive but illegal tactics,” said Kelly Beckley, Hoyt’s defense attorney.