Lewis Arthur Merryman v. Commissioner of Internal Revenue, Michael A. Carroll and Margaret W. Carroll v. Commissioner of Internal Revenue

REAYLEY, Circuit Judge,

dissenting:

Despite my great deference for the opinion of my colleagues and for the finding of the Tax Court, it is impossible for me to say that the Keeman Company had no economic substance. The purpose of this partnership was to reward key employees of Pernie Bailey by allowing them to participate in the profits and in the ownership of a substantial asset without changing the Washburn family ownership of Pernie Bailey itself. No one has ever suggested any reason to doubt that this was the bona fide purpose of the parties.

Without a finding that Keeman, and all of the dealings by the partners with respect to Keeman, were only dishonest pretense — and no such finding has been made *884—the statements that the economic positions of the parties were not altered and that the partners faced no financial risk and shared no risks of ownership cannot be justified. The Keeman partnership bought an expensive oil rig, signed a note for 2.25 million dollars, obligated itself to pay Per-nie Bailey $500 per operating day management fee, gained the right to profits and risked the loss of its rig and liability for its debts. Those are the realities of this case, despite the majority’s references to favorable terms and delayed payments and the majority’s unwarranted speculation about the “little likelihood that Pernie Bailey ... would hold the partners individually liable for arrearages.... ”

The Supreme Court has said that we are to look to the taxpayer’s good faith and subjective business purpose. Commissioner of Internal Revenue v. Culbertson, 337 U.S. 733, 742, 69 S.Ct. 1210, 1214, 93 L.Ed. 1659 (1949). So long as there are tax-independent considerations, taxpayers may structure their operations even to obtain tax benefits. If so, this case is being decided incorrectly.

I would remand to the Tax Court for findings on the government’s contention that the management agreement was actually a lease so as to make an investment tax credit unallowable.