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Court's opinion in Dixon II describes the mechanics of these
programs in detail.7
On January 22, 1981, following an undercover criminal
investigation, the Internal Revenue Service searched
Mr. Kersting's offices in Hawaii pursuant to a search warrant
issued by the U.S. District Court for the District of Hawaii.
Seventy-seven boxes and two filing cabinets of records were
seized from Mr. Kersting's office, including lists identifying,
by name and address, approximately 1,800 participants in
Mr. Kersting's programs, and schedules of the interest
purportedly paid by each participant to one or more Kersting
companies during the taxable years 1977, 1978, and 1979.
On January 24, 1981, Mr. Kersting wrote a form letter to the
participants of his programs, one of his many "Dear Friend"
letters, stating that he had been entrapped by an undercover
Internal Revenue Service special agent into creating a backdated
"tax deduction" of $21,600.8 By letter dated February 15, 1981,
Mr. Kersting provided participants in his programs with "tax
reporting notices", presumably for the 1980 tax year, and
encouraged them to "take full advantage of the deductions
7 The Kersting programs involved a number of corporations
(hereinafter Kersting corporations). Mr. Kersting served as both
a director and president of most of these corporations and also
sometimes owned stock. For those corporations in which he served
as president during the years in issue, he had exclusive
management authority.
8 The record in these cases contains no fewer than 38 "Dear
Friend" letters.
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