- 237 -
constitute genuine debt, and that interest was not "paid" on
Kersting loans within the meaning of section 163.
1. Mr. Kersting's Lack of Credibility
In Dixon II, the test case petitioners bore the burden of
proof and were required to show by a preponderance of the
evidence that respondent's determinations disallowing Kersting
interest deductions were erroneous. See Rule 142(a). As
discussed below, it is evident the test case petitioners' efforts
to satisfy their burden of proof were frustrated by the lack of
credibility of their principal witness, Mr. Kersting.
Judge Goffe made it abundantly clear in Dixon II, on the
bases of both his observations of Mr. Kersting at trial and his
review of the record, that Mr. Kersting lacked credibility,
particularly his testimony having a bearing on the tax viability
of his programs. Examples cited by Judge Goffe as evidence of
Mr. Kersting's lack of credibility included his false testimony
regarding: (1) The filing of tax returns for Kersting
corporations; (2) the reasons behind the closing of Kersting
accounts at Hawaii National Bank; (3) the level of Gabriele
Kersting's participation in daily corporate operations; (4) the
reasons for the frequent creation of new acceptance corporations;
and (5) the methods used to value Kersting stock. See Dixon II,
62 T.C.M. (CCH) at 1482, 1484, 1487, 1991 T.C.M. (RIA), at 91-
3024 to 91-3025, 91-3026 to 91-3027, 91-3029 to 91-3031.
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