Bow Herbert and Nancy Herbert v. Commissioner of Internal Revenue

Before us is a petition for review of a decision of the Tax Court involving asserted deficiencies in income tax against petitioners for the fiscal years ending September 30, 1958, September 30, 1959, and September 30, 1960, in the aggregate amount of $54,476.61.

The petitioners, husband and wife, filed joint income tax returns for the fiscal years in question. The Commissioner asserted that petitioners understated their income in their income tax returns for each of said years. On petition for redetermination by the Tax Court, that Court upheld the deficiency determination made by the Commissioner.

Hereafter for convenience, petitioner, Bow Herbert, will be referred to as the taxpayer, and only incidental reference will hereafter be made to petitioner, Nancy Herbert.

It appears from the record that during the tax years under review, and for several years prior thereto, there were two limited partnerships composed of the petitioners, as general partners, and in the case of the Gardena Club, Adam S. Campbell, Michael M. Wind, Murray Klein and taxpayer as limited partners, and in the case of the Horseshoe Club, Ben Cohen, Michael M. Wind, and A. S. Campbell and taxpayer as limited…

(dissenting).

The decision of the majority, as far as it goes, correctly sets forth many of the facts in this case. However, it seems to me that the majority opinion fails to give to these facts, and to additional facts not mentioned therein, the significance to which they are entitled, and from which interpretations and implications can reasonably be drawn which would justify the result reached by the Tax Court. In the following discussion I will attempt to point this out.

Although appellants Bow Herbert and his wife, Nancy Herbert, during the years in question (hereinafter sometimes called the “tax period”) were the two sole general partners of each limited partnership involved herein — namely, the Horseshoe Club and the Gardena Club — it is undisputed that, from the standpoint of control and management, Mrs. Herbert was a mere figurehead, and appellant Bow Herbert was for all practical purposes, the sole general partner and managing partner of each of these limited partnerships. It is my understanding that California laws as to limited partnerships, like those of most jurisdictions in this country, do not permit limited partners to take any part whatsoever in the management…

(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…

377 F.2d 65 67-1 USTC P 9160 Bow HERBERT and Nancy Herbert, Appellants, v. COMMISSIONER OF INTERNAL REVENUE, Appellee. No. 19935. United States Court of Appeals Ninth Circuit. Dec. 30, 1966, Dissenting Opinion April 4, 1967, Concurring Opinion April 24, 1967, Rehearing Denied May 31, 1967. George M. Bryant, Clyde R. Maxwell, Robert E. Guilford, Daniel R. Sheahan, Robert A. Hinshaw, J. W. Allyn, of Bryant, Maxwell, Guilford & Sheahan, Los Angeles, Cal., for appellants. Richard M. Roberts, Acting Asst. Atty. Gen., Louis F. Oberdorfer, Asst. Atty. Gen., Meyer Rothwacks, Robert N. Anderson, Carolyn R. Just, Attys., Tax Div., U.S. Dept. of Justice, Mitchell Rogovin, Chief Counsel, Henry Kutz, Atty., Internal Revenue Service, Washington, D.C., for appellee. Before JERTBERG and MERRILL, Circuit Judges, and TAVARES, District judge. JERTBERG, Circuit Judge: 1 Before us is a petition for review of a decision of the Tax Court involving asserted deficiencies in income tax against petitioners for the fiscal years ending September 30, 1958, September 30, 1959, and September 30, 1960, in the aggregate amount of $54,476.61. 2 The petitioners, husband and wife, filed joint income tax returns…