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II. Notices of Deficiency Issued to Kersting Program
Participants
In 1982, respondent began to issue notices of deficiency to
Kersting program participants, disallowing interest deductions
claimed with respect to the stock purchase plan, the stock
subscription plan, the leasing company plan, and the CAT-FIT plan
for a number of taxable years.
A. Form of Notices of Deficiency
The notices of deficiency issued by respondent to many
Kersting program participants used a common format, stating in
pertinent part as follows:
EXPLANATION OF ADJUSTMENTS
1. It is determined that the following amounts claimed
on your income tax return as interest deductions
are not allowable:
Amount Purported Payee[10]
$--------- Any entity owned, associated
with, or controlled, either
directly or indirectly, by
Henry Kersting
This disallowance is based on the determination that
the transactions 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
compensation for use or forbearance of money on
indebtedness within the meaning of I.R.C. Section 163.
Furthermore, if it is established that any portion
of the above disallowed "interest" is a properly
10 In some instances, respondent's notices of deficiency
listed specific Kersting corporations under "Purported Payee".
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