- 245 -
there was a mutual understanding between Mr. Kersting and his
program participants that primary and leverage loans would not be
enforced. Judge Goffe rejected the collection litigation
evidence as a basis for sustaining the validity of the Kersting
loans as follows:
As illustrated by Kersting's pay-or-else letter
to over 30 clients on September 25, 1980, and his 1986
correspondence with the Thompsons, his overriding
concern was to be compensated by means of leverage loan
interest. It was this amount that even he often
referred to as a "fee" or a deductible "cost" of tax
deductions. In encouraging clients by means of the
September 25, 1980, letter to "discharge the debt to
which you are a party," he sought only small amounts
that could not have represented typical primary or
leverage loans. His letters to the Thompsons indicate
that he only threatened or pursued collection of
principal obligations when the investor neglected or
refused to pay leverage loan interest. This rare
occurrence, which Kersting did not testify he either
intended or expected, is not sufficient to transform
any of petitioners' loans from Kersting corporations
into genuine recourse indebtedness.
Id. at 1506, 1991 T.C.M. (RIA), at 91-3049 to 91-3050.
5. CAT-FIT Plan
Judge Goffe found that the record in the trial of the test
cases did not provide a basis for the Court to understand fully
how the CAT-FIT program operated or how Mr. Kersting intended the
program to operate.105 In any event, Judge Goffe concluded that:
(1) The CAT-FIT program was a sham transaction that provided no
economic benefit other than the creation of tax losses; (2) the
105 The test case petitioners who participated in the CAT-
FIT program included the Dixons, DuFresnes, Owenses, and
Hongsermeiers. See Dixon II, 62 T.C.M. (CCH) at 1507, 1991
T.C.M. (RIA), at 91-3050 to 91-3051.
Page: Previous 235 236 237 238 239 240 241 242 243 244 245 246 247 248 249 250 251 252 253 254 NextLast modified: May 25, 2011