- 74 -                                         
               Respondent does not dispute that Kersting insisted on                  
               these interest payments, but maintains that to the                     
               extent they were made they must be characterized as                    
               fees to Kersting for providing tax deductions.                         
               Consequently, that Carl Mott allegedly failed to pay                   
               interest on leverage notes is of no significance to the                
               substance of his or anybody else's leverage loans.                     
          *   *   *   *   *   *   *                                                   
                    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.                                    
          Dixon II, 62 T.C.M. (CCH) at 1505-1506, 1991 T.C.M. (RIA), at 91-           
          3049 to 91-3050.                                                            
          VI. Settlements                                                             
          A.   Internal Revenue Service Policy                                        
               1.   National Office Position                                          
               After a tax shelter project is created and a project                   
          attorney and a project Appeals officer are appointed, an official           
          project settlement offer is determined by the project Appeals               
          officer, the project attorney, and District Counsel.  The project           
          attorney and project Appeals officer review the strengths and               
          weaknesses of the particular tax shelter and evaluate the hazards           
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