*2499 Held that there existed during the years 1922 and 1923 a partnership composed of petitioner and his four sons, and profits credited on the books to the sons are not taxable to petitioner.
*895 This is a proceeding for the redetermination of deficiencies in income taxes for the calendar years 1922 and 1923, in the respective amounts of $3,273.82 and $1,097.24.
The issue is whether certain income taxed to the petitioner was his income.
FINDINGS OF FACT.
The petitioner is an individual with place of business and residence at Williamsport, Pa.
In 1918 petitioner was a dealer in meats and provisions. The business was conducted under the name of "John Peters." In that year he entered into an oral agreement with two of his sons, Clarence Peters and Raymond Peters, who were then employed in the business. Dewey Peters, another son who was employed in the business later, became a party to the agreement. About 1920 Dewey Peters left the business and went to work for another company. He was away for about two*2500 years.
On January 1, 1921, petitioner entered into an oral agreement with three of his sons, Clarence, Raymond and Phillip. Phillip and Raymond were not of age at that time. The agreement provided *896 that petitioner should leave in the business the capital which he already had therein and also add a proportion of the profits each year. None of the sons advanced any capital but were to receive a proportion of the profits which were to be left in the business. Petitioner was to receive 60 per cent of the profits, Clarence was to receive 25 per cent and the other three sons were each to receive 5 per cent of the profits. All of the sons, as well as petitioner, were to receive salaries. These salaries were determined either by the petitioner or his son Clarence. All the parties to the agreement were to share in any net losses that might be sustained, but none of the sons were to be liable for any greater amount than the amount they had invested in the business. This agreement was to terminate December 31, 1929. It was to be put into writing later. After the agreement the business was conducted under the same name.
Dewey Peters later came back to work in the business. *2501 No meeting or new agreement was had on the occasion of his return.
During the years 1922 and 1923 no net losses were sustained.
Clarence Peters was the manager of the business and after the agreement was made the petitioner took a less active interest in the business.
During the years 1922 and 1923, when the net profit was determined, the portion to be credited to the sons was first charged to an account headed "Commissions." It was then credited to the capital account of each of the sons and the "Commissions" account was then closed out. None of the sons ever actually received the amounts so credited to them.
The profits of the business were credited to the capital account of the petitioner and his sons as follows:
| John | J. Clarence | Raymond | Dewey | Phillip | Total | |
| 1922 | $20,351.25 | $7,850.83 | $1,570.15 | 0 | $1,570.15 | $31,342.38 |
| 1923 | 11,963.18 | 4,601.05 | 920.21 | 0 | 920.21 | 18,404.65 |
| 49,747.03 |
During the years 1922 and 1923, when Dewey Peters was away from the business, the amounts of the credits, which otherwise would have been entered to his credit, were entered to the credit of the petitioner and it was included by*2502 him in his income-tax returns as income.
The salaries paid to the sons in 1922 and 1923 were as follows:
| J. Clarence | Raymond | Dewey | Phillip | |
| 1922 | $10,800 | $3,800 | $160 | $2,500 |
| 1923 | 11,630 | 3,800 | 1,200 | 1,380 |
*897 In their returns for the years 1922 and 1923 the sons returned their salaries but did not include in such returns any of the credits to their capital accounts.
The partnership filed no returns for the years 1922 and 1923 due to the fact that Clarence Peters, who had charge of the business, did not know that they were required.
In his returns for the years 1922 and 1923, petitioner included only 60 per cent of the income of the business. These returns showed that the remainder of the profits of the business went to the sons. These amounts credited to the sons were claimed by the petitioner as deductions as "commissions."
The respondent held that the amounts credited to the sons were distributions of profit to the petitioner and were taxable to him.
OPINION.
SIEFKIN: The evidence discloses that in 1922, $10,991.13 was credited on the books of the company to the sons of the petitioner, and that in 1923, $6,441.47 was*2503 credited to them. The respondent treated these amounts as income to the petitioner.
The petitioner contends that the respondent erred:
(1) In denying the existence of the partnership between the petitioner and his sons for 1922 and 1923;
(2) In holding that the amounts to the credit of the sons constituted a withdrawal of the petitioner of profits to his own use, and
(3) In holding that these amounts were taxable to the petitioner.
From the evidence in the case we must conclude that there existed a partnership between the petitioner and his sons in 1922 and 1923. They intended to form a partnership, all were to share in the profits or losses, and each had an interest in the business by virtue of the crediting of profits to the account of each.
The respondent erred in holding that the profits of the business credited to the sons were taxable to petitioner.
Reviewed by the Board.
Judgment will be entered under Rule 50.