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providing for deficiencies of zero, $15,000, and $15,000 for the
taxable years 1979, 1980, and 1981, respectively. On August 20,
1992, respondent filed objections to Mr. DeCastro’s motion for
entry of decision, together with respondent’s own motions for
entry of decision and an accompanying memorandum. Respondent’s
motion papers set forth the facts regarding the Thompson
settlement that had been discovered by IRS senior officials.
Respondent informed the Court that, before the test case trial,
Messrs. Sims and McWade had agreed to settle the Thompson cases
by reducing the Thompsons’ deficiencies in amounts sufficient to
compensate them for their projected attorney’s fees. As
respondent explained to the Court, Messrs. Sims and McWade had
agreed with Mr. DeCastro that:
All settlement refunds in excess of the amounts
provided by the December 1986 agreement would go
ultimately to the benefit of Mr. DeCastro for payment
of his legal fees and costs. Mr. DeCastro would be
paid solely from amounts refunded by the Service to
Thompson. * * * This “New Agreement”, in sum and
substance, if not explicitly, was designed, and
constituted an agreement by Messrs. Sims and McWade to
pay Mr. DeCastro’s legal fees and expenses.
Respondent’s motion papers maintained that the new agreement
pursuant to which respondent would pay Mr. DeCastro’s fees was
unauthorized and had no legal basis. Respondent conceded,
however, that the original 18.8-percent reduction settlement
between Messrs. McWade and DeCastro on behalf of the Thompsons
was valid and within the scope of District Counsel’s settlement
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