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Arbitrage Management partners emphasized that they wanted respondent
to establish a procedure whereby the IRS could process the
deficiency and overpayment years at the same time, so that the
taxpayers could pay a net amount.
After the February 25, 1988, pretrial conference, Mr. Kletnick
sent the Court quarterly status reports of the Arbitrage Management
cases. The reports described the progress of the IRS in developing
settlement implementation procedures regarding all tax years
individuals invested in Arbitrage Management. For instance, an
October 24, 1988, status report sent to the Court states in
pertinent part:
The settlement implementation procedures,
with respect to individuals who were partners
in TEFRA partnerships, are currently being
considered by the Office of Chief Counsel in
Washington, D.C. As you well know, the parties
had agreed to resolve all of the years which
were in dispute as a result of an individuals
[sic] "investment" in AMIC. In many cases this
involves settling a taxpayer's 1978 through
1987 years. It has been estimated by the
Examination Division of the Internal Revenue
Service that this settlement will affect over
800 partnerships and 9,000 individual tax
returns. [Emphasis added.]
Moreover, in a January 30, 1989, status report, the Court was
notified that: "the settlement implementation procedures, with
respect to individuals who were partners in TEFRA partnerships, have
been approved and issued by the Office of Chief Counsel in
Washington, D.C." The status reports did not suggest that the IRS
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