Jerry and Patricia A. Dixon, et al - Page 170




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          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.                                        

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