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III. The Test Case Litigation and the Thompson Settlements
A. Selection of the Test Cases
McWade and Seery planned to use the test case procedure to
dispose of the cases of the Kersting program petitioners who
wished to contest the deficiencies determined against them by
respondent. Most of these petitioners entered into stipulations
of settlement for tax shelter adjustments, also called “piggyback
agreements”. Respondent and petitioners who entered into
piggyback agreements thereby agreed to be bound by the results in
the selected test cases. On June 10, 1986, McWade and Seery
provided the names of the test case petitioners they had selected
to Judge Goffe.
Seery and McWade had agreed to the selection of test cases
in 14 dockets of seven married couples who had filed joint
returns and one individual who had not filed jointly. Among the
couples selected to be test case petitioners were the Thompsons,
John R. and E. Maria Cravens (the Cravenses), and Richard and
Fiorella Hongsermeier (the Hongsermeiers).
Seery particularly sought to include the Cravenses as test
case petitioners because they treated their payments to Kersting
as basis reductions that resulted in capital gain upon the
termination of their interests in the programs. The Cravenses
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