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2. The Thompsons’ Escape From Kersting
Liability with Respect to 1982
As discussed earlier, the Thompsons claimed Kersting (and
probably Bauspar) deductions on their 1982 return sufficient to
reduce their adjusted gross income of $99,364 to $4,336.
Respondent took no action with respect to that return, and the
generally applicable 3-year period of limitations for the
Thompsons’ 1982 tax year expired in May 1986. Given the fact
that the Thompsons did not retain DeCastro until November 1986,
respondent’s failure to act on the Thompsons’ 1982 return before
the expiration of the 3-year period of limitations could not have
been part of the secret settlement agreement between DeCastro and
McWade.
Petitioners nevertheless maintain that the Thompsons’ escape
from Kersting liability with respect to 1982 is attributable to
the DeCastro/McWade agreement. In support of that argument, they
point to DeCastro’s August 3, 1989 letter to McWade, which
states: “We have agreed that the total taxes due for all the open
years are $15,000 for 1980 and $15,000 for 1981.” (Emphasis
added.) Petitioners then argue that the Thompsons’ 1982 tax year
was still fair game at that time because Mr. Thompson’s fraud
rendered the statute of limitations inapplicable pursuant to
58(...continued)
event, that settlement was consummated in early to mid-1986,
before DeCastro came on the scene.
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