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shelter project, such as the Kersting project, is assigned to a
particular District Counsel’s office, that office has the
authority to settle any individual case in the project. District
Counsel has the authority in special circumstances to settle
individual tax shelter project cases on a basis different from
the project settlement offer.
By September 1986, Messrs. McWade and Seery agreed to modify
the 7-percent reduction settlement offer to incorporate a new
feature they called the “burnout” in cases involving more than 1
taxable year. Under this feature, the interest on a taxpayer’s
total unpaid deficiencies for the first and second years of tax
liability would not begin to accrue until the due date for the
second year. The burnout thus postponed for a year the accrual
of interest on the first year’s deficiency and reduced the total
interest that accrued on the deficiencies for both years. This
was accomplished by zeroing out the taxpayer’s agreed deficiency
for the first year and adding it to the agreed deficiency for the
second year.
The record does not disclose whether petitioners were aware
of respondent’s pretrial settlement offer; in any event,
petitioners did not enter into a settlement before trial.
The Test Case Procedure
It would have been a daunting task to try the cases of the
hundreds of similarly situated Kersting program participants who
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Last modified: May 25, 2011