Bernhard F. and Cynthia G. Manko - Page 10

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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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