- 79 -
offer in one significant respect. Specifically, by September
1986, Mr. McWade and Mr. Seery had agreed to modify the 7-percent
settlement offer to incorporate a new feature they called the
"shelter burnout" that would apply in cases involving more than 1
taxable year. The shelter burnout feature grew out of Mr.
Seery's contention that Mr. Kersting's programs could be viewed
as a tax deferral mechanism.40 Mr. McWade agreed with Mr. Seery,
for settlement purposes, to allow a shifting of the initial
year's deficiency to a later year as a "shelter burnout". For
example, in a case involving 2 taxable years, the taxpayer's
liability for statutory interest under section 6601 was computed
under the modified 7-percent settlement offer by treating the
taxpayer's tax liability for the earlier of the 2 years as having
been incurred on the due date for payment of tax for the later
year. Under this approach, the total amount of the taxpayer's
underlying tax deficiencies remained the same, but the taxpayer's
liability for interest on the deficiencies was reduced by the
amount of such interest that otherwise would have accrued on the
deficiency for the earlier year of the 2-year period. Variations
of this approach were used in cases involving more than 2 taxable
years. The modified 7-percent settlement offer negotiated by
40 In Dixon II, the Court considered and rejected the
argument that Mr. Kersting's programs resulted in mere tax
deferral. The Court arrived at this conclusion through a
detailed analysis of the Cravenses' tax returns for 1979 and
1980. See Dixon II, 62 T.C.M. (CCH) at 1483-1484, 1991 T.C.M.
(RIA), at 91-3026.
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