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Bauspar participants through the Kersting project. Respondent’s
identification of Bauspar participants appears instead to have
been a “hit or miss” proposition; although respondent has
disallowed some Bauspar deductions claimed by a few Kersting
project petitioners, those disallowances have been sporadic.
Because the Bauspar program was not included in respondent’s
Kersting project, we refer to interest deductions claimed under
the Bauspar program as Bauspar deductions rather than Kersting
deductions.
C. Respondent’s Project Settlement Offer
Between 1982 and 1988, respondent had in effect an official
settlement offer for the Kersting project. In general, the offer
permitted participants in the Kersting programs to resolve their
cases by agreeing to pay income tax deficiencies that averaged 7
percent less than those determined in their deficiency notices.
The offer also released participants from negligence additions
and increased interest.
By September 1986, respondent’s counsel had agreed to modify
the 7-percent reduction settlement offer to incorporate a new
feature, called the “burnout”, that would apply in cases
involving more than one taxable year. Under this procedure, 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 return due date for the second year. The burnout thus
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