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also pay $11,844 to Mr. Kersting for interest purportedly due on
certain leverage loans; i.e., Mr. Kersting's fees.112
We have found that Messrs. Sims and McWade misled the Court
and the remaining parties to these cases by not disclosing the
Thompson settlement before the trial of the test cases. As with
Mr. Cravens, an argument can be made that Judge Goffe would have
removed the Thompson cases from the test case array, inasmuch as
the remaining test cases provided full coverage of the Kersting
programs and taxable years in dispute. Proceeding on the
assumption that Judge Goffe would have precluded Mr. Thompson
from testifying at the trial of the test cases, we consider
whether Mr. Thompson's testimony was material to the outcome in
Dixon II.
i. Sham Analysis
Judge Goffe relied upon factors common to all the test case
petitioners in rejecting their testimony that they had entered
into the Kersting transactions with a business purpose. Those
factors included the test case petitioners' participation in the
Kersting programs without regard to whether the purchase price
for the stock they purported to purchase was reasonable and
appropriate, and without specific knowledge about the Kersting
corporations involved, the industries in which they operated, or
the impact of prevailing economic conditions on their investment
112 In Dixon II, Judge Goffe concluded that interest
payments on leverage loans reflected Mr. Kersting's fee for
generating interest deductions. Dixon II, 62 T.C.M. (CCH) at
1506, 1991 T.C.M. (RIA), at 91-3050.
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