Court Opinion

ID: 9452724
Source: CourtListenerOpinion
Date Created: 2023-08-04 17:49:44.452561+00
Date Added: 2024-06-11T17:33:19.912811
License: Public Domain

MERRILL, Circuit Judge
(Concur-
ring with Judge Jertberg):
As the filing dates which the opinions herein bear indicate, the majority opinion was filed prior to, and without reference to, the dissent. I feel it appropriate under the circumstances to state that Judge Tavares has failed to dissuade me from my original concurrence with Judge Jertberg and, with the consent of my brothers, to add some thoughts of my own. In order that any petition for rehearing may address itself to all three opinions, I am authorized by the Court to state that judgment of the Court shall date from this final filing, and that respondent may, within the time prescribed by rule, supplement his petition now on file.
Behind the issues argued to us on which the Court has divided, a more modest question presents itself — one that seems to me to define the true dimensions of the controversy. I would state it as follows:
Where, by virtue of the peculiar nature of its business, an enterprise finds it necessary for business reasons to engage in a course of secret payments to undisclosed recipients, who should bear the tax consequences of the fact that such payments cannot qualify as deductible business expenses: the owners of the business, or the individual who is directly responsible for making the payments? We hold: the owners.
*78The principal dispute is as to the facts assumed by my statement of the question. I regard that dispute as laid to rest by the terms of the 1961 settlement.
As the dissent points out, appellant’s partners had their disputes with him and were constantly grumbling over his secret operations. However, in resolving their differences in 1961 they ultimately agreed with appellant that the making of secret payments was necessary to their business. By their settlement agreement they continued to place under appellant’s control a partnership fund for the purpose of. making such payments, limited only as to amount. Further, in fixing those limits they agreed that the amount of secret payments anticipated as reasonably necessary for business operations was not substantially less than what appellant had drawn in the past. (It was, in fact, more than appellant had disbursed in one of the years in question.) Thus they apparently were satisfied, despite their past doubts, that appellant had disbursed the fund for business purposes. Further, by their agreement they recognized that the super-secrecy of the payments (secret even as to them), to which they had been objecting, was necessary for business purposes. Appellant was expressly given the authority he had asserted all along — to pay without need to account.
This is indeed (as the dissent emphasizes) an extraordinary way of doing business and suspicions as to the nature of such payments spring easily to mind. I do not find them relevant here, however. If the partners feel that such trust and secrecy is in the best interests of their unusual business enterprise, and settle their differences on such a basis, I see no reason to argue with them.1
Two conclusions seem to me to result: First, that no inference of misappropriation on the part of appellant can be drawn from the unusual methods of operation to which the partnership, for business reasons, has committed itself; second, that the tax consequences of such methods should be spread among the partners.

. A case might well arise where the establishment of a partnership fund with freedom from accounting could give rise to inferences or suspicions that the partners had fraudulently entered into a conspiracy to pad the income of one partner. There is no contention that this is such a case.