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The circumstances of the search of Mr. Kersting's offices are
described in the Court's opinion in Dixon v. Commissioner, 90
T.C. 237 (1988) (Dixon I).
On April 15, 1982, respondent issued a joint notice of
deficiency to petitioners determining a deficiency in their
Federal income tax for 1978 in the amount of $47,580.75 and an
addition to tax under section 6653(a) in the amount of $2,379.3
The notice of deficiency, in a form apparently used by respondent
in issuing notices of deficiency to a number of taxpayers with
Kersting-related adjustments, states in pertinent part:
EXPLANATION OF ADJUSTMENTS
1. It is determined that the following amounts claimed
on your 1978 income tax return as interest deductions
are not allowable:
Amount Purported Payee
$67,972.50 Any entity owned, associated
with, or controlled, either
directly or indirectly, by
Henry Kersting
This disallowance is based on the determination that
the transaction giving rise to the claimed interest
deduction are shams. This disallowance is further
based upon your failure to establish that the above
amounts were paid or properly accrued, or that the
transactions purportedly generating the claimed amounts
resulted either in any bona fide indebtedness or in any
enforceable and bona fide obligation to pay
3 The notice of deficiency was issued approximately 70 days
prior to the expiration of the normal 3-year period of
limitations applicable to the assessment of Federal income taxes.
Sec. 6501(a).
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