Opinion ID: 835263
Heading Depth: 2
Heading Rank: 1

Heading: The Hoyt Enterprise

Text: Hoyt began his enterprise in the early 1970s. That enterprise was intended to operate in the following fashion. Each individual investor would be a limited partner in an investor partnership that would include approximately 30 other individual investors. The investor partnerships would purchase cattle [3] from Hoyt & Sons Ranches (Hoyt & Sons), entitling the partnerships to tax depreciation deductions that would flow through to the individual investors. The investor partnerships would purchase the cattle by making small cash investments and executing promissory notes to Hoyt & Sons for the remainder. [4] Another Hoyt entity, Laguna Tax Service, would prepare the individual investors' tax returns. The individual investors would pay 75 percent of their resulting tax savings toward their partnership note obligations and retain 25 percent of those savings for themselves. The money that the individual investors paid would be dispersed to various other Hoyt entities that managed and maintained the cattle herds. After 15 years, the note obligations would be paid in full, and the cattle would be sold. In the beginning, the Hoyt enterprise likely operated as we have described. To what extent it continued to do so over time is unclear, and that lack of clarity has a significant effect on the result in this proceeding. In the late 1980s or early 1990s, Hoyt & Sons was liquidated. At about that same time, Hoyt created MLP and intended to transfer the promissory notes made payable to Hoyt & Sons to that new entity. In approximately 1991, the Internal Revenue Service (IRS) began to freeze the tax refunds that individual investors had been receiving, and from that time forward, instead of making payments from expected refunds, investors made payments from their own funds. Whether Hoyt actually transferred the notes to MLP for consideration, whether the notes were enforceable obligations of the investors, and whether the payments by investors in 1996 and 1997 were payments on the notes or contributions to their partnerships to cover the costs of maintaining their herds are important issues in this case. Hoyt was the creator and promoter of the enterprise we have described. He was also the managing partner of all the entities material to this case, including MLP and the investor partnerships.