I have a Kohler K341 16 horse cast iron engine on a Allis 716 tractor.
I have replace the points, plug, condensor, fuel filter and put on a
brand new carb.

The tractor surges no matter what I do with the carb adjustments. I
have verified points gap is correct. Seems to be much better when
cutting grass under load--doesn't surge very much then...but it is bad
when sitting or just riding. Pulled head and found valves and cylinder
look normal. Onlyh other thing I can add is that when turning over to
start it sometimes kicks back while starting...other than that it
starts fairly easily...though it has to turn over a bit. I can see
the governer working the carb, and it seems like if I disable the
governer (unhook link) it will stall. This engine has the automatic
compression release system for easier starting as an fyi.

This has me stumped. it doesn't burn oil or smoke either.