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On May 29, 1992, Mr. Sims sent a letter to Mr. DeCastro
informing him that the Thompson settlement had been rejected by
Regional Counsel, stating in pertinent part as follows:
As I'm sure you recall, on or about October, 1986,
you approached Ken McWade of this office with an offer
to settle * * * [the Thompson] cases based on the
Government's then outstanding settlement position for
the Kersting project. At that time, I informed you
that, since the Thompsons' cases had been designated as
test cases in the Kersting project litigation, I would
not approve of any settlement of these cases prior to
trial. Nonetheless, I represented to you that I would
exert my personal best efforts to see that the
Thompsons were not disadvantaged by my decision not to
settle. I also advised you that I was not in a
position to guarantee success inasmuch as approval of a
higher authority might be required. Finally, I advised
you that if the test case petitioners won, we would
allow you to enjoy that result. I am certain that both
you and I left with the clear understanding as a result
of what I had said, the [sic] we remained adversaries
with respect to the litigation.
Mr. Sims' letter further states that, absent an appeal, the
Internal Revenue Service would assess the full deficiencies in
the Thompson cases, consistent with the Court's Dixon II opinion,
plus all applicable statutory additions to tax. The total
assessment, including interest, would have been $302,396.12.
On June 1, 1992, Mr. Sims sent Mr. Sanchez a copy of
Mr. DeCastro's August 3, 1989 letter, signed by Mr. McWade,
acknowledging the second revision to the Thompson settlement. On
June 2, 1992, Mr. Sanchez and Mr. Bakutes had a conference call
with Messrs. Sims, McWade, and DeCastro. During the call,
Mr. DeCastro claimed that Mr. Thompson had a profit motive and
that Mr. Thompson's testimony was stronger on this point than
that of any of the other test case petitioners. Mr. DeCastro
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