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would litigate their cases. A letter from Mr. Kletnick to Mr.
Nolan dated January 12, 1988, states:
On December 22, 1987 we met and reached an
agreement as to a method of resolving the cases
involved in this project. This settlement
methodology is operative so long as there is no
material deviation from our understanding that
we are splitting the tax stakes on an 80-20
basis (or cash plus 15 percent). Your letter
dated December 29, 1987 accurately reflects the
settlement methodology, except for the basis
adjustment and limit.
Pursuant to this agreement, the IRS would: (1) Allow the deduction
of 20 percent of the challenged losses (or, at the taxpayer's
option, out-of-pocket cost plus 15 percent); (2) eliminate capital
gains in an amount commensurate with the disallowed losses; and (3)
forgo the assertion of penalties.
On January 15, 1988, Mr. Kaplan hand-delivered to Mr. Kletnick
a letter that states:
The following named Tax Court petitioners have
agreed to accept the settlement offered by the
Internal Revenue Service to partners in
Arbitrage Management Project partnerships and
as described in letters to you from John S.
Nolan, Esq. of Miller & Chevalier, dated
December 29, 1987 and January 7, 1988,
respectively (copies attached).
The letter lists approximately 135 Arbitrage Management partners,
including petitioner, by name and docket number. The docket number
listed for petitioner covers tax year 1978 only. The letter
further states: "we understand that a petitioner's acceptance of
this settlement offer also constitutes an acceptance of the same
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