Currently you only pay taxes if you cash BTC in for USD, since I suppose he bought all of his gear with BTC and since you deduct all expenses (What he had to Cash BTC into USD for) Taxes would be negligible.
Clever, that would work. It's a grey area, but not one that anyone at the IRS would be aware of or want to touch.
Overall, we have different comfort levels of data required for investment. This is one of the least transparent (if not most opaque) BTC investments available. It is what it is, we invested before LR had any track record of success, so it is on us. I just am hope he receives an education through his own experience and learns where he can improve (and then implements improvements). Those questions, in my opinion, need to be explicitly answered - not just hand-waving "trust me."
My biggest problem is not simply getting hashrate quicker than difficulty increases. That short sighted goal is financial and business suicide and will drive share price to 0 (literally, 0) with dividends that do not exceed investment. You need to make sure you get hashrate at BTC/GH/s that exceeds the expected valuation (in BTC) of the hardware when accounting for difficulty increase. Those are two very different things. LR has never made any statements or comments indicating he knows the difference, nor indicated he has plans for implementing it. Even if you do implement it, one of two things can happen: 1) share price shrinks to 0 if you reinvestment rate doesn't exceed difficulty, but dividends will exceed investment or 2) share price rises if reinvestment rate exceeds difficulty, but dividends will be smaller than case 1. I think LR wants to be in case "2" What is his plan to stay in case '2'? Are we there?
But you're right, it is our fault for putting too much trust in him at the start without these answers.