*98 Decision will be entered for the respondent.
Petitioner operated a contracting business as a sole proprietor. In 1942 he contracted with his son to become a general partner in his business. He failed to show, however, that during the two taxable years following the signing of the agreement, his son contributed to the partnership capital from his own funds, rendered any vital service to the partnership, or had any intention of rendering such service during the taxable years. Petitioner is liable for the tax on the partnership income distributable to the son during the taxable years.
*234 The Commissioner determined a deficiency in income tax for the taxable year ended December 31, 1943, in the amount of $ 63,256.74. The basic issue involved herein is whether or not there existed a partnership, to be recognized for computing income tax, consisting of the petitioner, his son Harold, and his wife Marion, during the taxable year 1943. In his brief petitioner states that he does not question the respondent's failure to recognize the petitioner's wife as a*99 partner during the taxable year.
FINDINGS OF FACT.
T. Edward Ritter is 56 years of age, and he has engaged in the business of excavating, road building, paving, and riprapping for 25 years. He has two sons, Harold, born in 1919, and Kenneth, born in 1923. He filed his income tax return for 1943 with the collector of internal revenue for the district of Virginia at Richmond, Virginia.
In 1931 petitioner, as sole stockholder, incorporated T. E. Ritter Co. This corporation was dissolved in 1941. Thereafter and until December 31, 1942, petitioner pursued his occupation as a sole proprietor, operating under the name of "T. E. Ritter Company."
The amounts of gross income, net income, and losses of the corporation and the individual proprietorship were as follows:
| Year ended -- | Gross income | Net income | Loss |
| 5-31-36 | $ 72,561.04 | $ 2,582.00 | |
| 5-31-37 | 29,680.13 | $ 731.44 | |
| 5-31-38 | 19,621.16 | 198.03 | |
| 5-31-39 | 26,855.22 | 1,254.69 | |
| 5-31-40 | 125,942.49 | 213.68 | |
| 6-1-40 to 5-31-41 | 307,493.61 | 3,561.37 | |
| 4-1-41 to 12-31-41 | 472,560.02 | 42,113.45 | |
| 12-31-42 | 902,684.12 | 64,478.13 |
*235 When Harold was 17 years of age and in high school petitioner procured employment for him during*100 his vacation with an associate contractor, where he earned 35 cents an hour. This employment was procured for the purpose of discovering Harold's aptitude for his father's occupation, as the father desired that his son should later associate with him in the contracting business. With this in mind, Harold entered an engineering college in 1938. He worked with his father during the summers of 1938 and 1939 and a part of 1941, being paid a salary of 50 cents per hour. During the summer of 1941 Harold also attended the Reserve Officers Training Corps. In June of 1942 Harold graduated from college and immediately entered the military service. While on a furlough in the fall of that year he expressed a desire to become a partner with his father as planned, and, when he returned on a furlough over the Christmas holidays in 1942, a partnership agreement was drawn up and signed by the petitioner, Harold, and the petitioner's wife. The material parts of this contract are:
The business to be carried on by the said partners is to conduct a general contracting and hauling business in all of its branches.
* * * *
The capital stock of said company is to be the sum of Forty five thousand Dollars, *101 of which T. Edward Ritter has contributed the sum of $ 27,000.00, Harold Edward Ritter has contributed the sum of $ 9,000.00, and Marion D. Ritter has contributed the sum of $ 9,000.00. The said T. Edward Ritter and Harold Edward Ritter shall be denominated as general partners, and shall be in complete charge and management of said business. The said Marion D. Ritter is to be denominated as a special or limited partner. All of the partners are to share in the profits of said business, in the same proportion in which they have contributed to the capital of said business. The said Marion D. Ritter as special or limited partner, is not to share in or contribute to any losses of said business. The losses, if any, are to be borne by the general partners.
* * * *
The said T. Edward Ritter and Harold Edward Ritter shall give their entire time and attention to said business.
Petitioner's wife was included in the contract as a limited partner only to take care of the 20 per cent interest of Kenneth T. Ritter, petitioner's younger son, until he became of age.
The $ 9,000 stated in the partnership agreement to have been contributed by Harold E. Ritter and Marion D. Ritter came from T. *102 Edward Ritter as a gift to his son and his wife.
Following the signing of the contract the petitioner filed gift tax returns for the gifts to Harold and his wife.
A fictitious name certificate was filed with the clerk of the Corporation Court of the City of Norfolk, giving the name of the partnership and the members thereof.
The machinery and equipment of the sole proprietorship was transferred to the new partnership.
*236 During the following year, 1943, petitioner signed one contract with the War Department, for an estimated consideration of $ 860,000, as "T. E. Ritter Company by T. E. Ritter." In a letter preliminary to the contract and attached thereto petitioner signed his name "T. E. Ritter" on a line under which was written "Thomas Edward Ritter, an individual trading as T. E. Ritter Company." Another War Department contract, providing a consideration of $ 287,000, was signed merely "T. E. Ritter."
For the year 1943 gross income, net income, and the partnership net worth of T. E. Ritter Co. were as shown below:
| Date | Gross income | Net income | Net worth |
| Jan. 1, 1943 | $ 81,850.48 | ||
| Year 1943 | $ 2,533,541.15 | $ 174, 649.51 | |
| Dec. 31, 1943 | 149,631.65 |
During *103 1943, 1944, and 1945 neither Harold nor Marion withdrew from the partnership any part of their distributive shares, although their income tax payments for those years were paid from the partnership funds and their accounts on the partnership books were credited with their distributive shares. In December of 1945 Harold drew a salary for his services to the partnership for that month.
After the petitioner had entered into the partnership agreement there was no change whatever in the operation of the business which had formerly been carried on by T. E. Ritter as a sole proprietor. The same machinery and equipment, with the exception of some new purchases, which had been used prior to December 31, 1942, was used during the year 1943 in the performance of the work contracted for by Thomas Edward Ritter.
Neither Harold nor Marion rendered any service to the petitioner or to T. E. Ritter Co. during the year 1943. Harold returned home in November 1945 on terminal leave, worked for the partnership as general superintendent during December of that year, and was honorably discharged in January 1946. He did not know what the earned income of T. E. Ritter Co. was during 1943.
T. E. Ritter *104 Co. was liquidated in June 1946 and its assets were transferred to T. E. Ritter Corporation, which continued the business formerly conducted by the partnership. The capital stock of the corporation was distributed as follows: T. E. Ritter, 60 shares; Harold Ritter, 20 shares; and Kenneth Ritter, 20 shares.
OPINION.
Petitioner contends that the $ 9,000 contribution of Harold to the partnership was his own capital, since the father *237 had promised his son before entering college in 1938 that if the son completed his engineering course the father would take him into partnership, and, since the boy did complete his engineering course, petitioner argues he was entitled to the $ 9,000 and the partnership status as a fulfillment of the father's contractual obligation.
Our failure to find as a fact the existence of the contract is not a reflection on the effort and intention of the taxpayer herein to give a truthful narration. Nine years have elapsed since the occurrence of the conversation between the father and son and the time the father testified. The shades of difference between words which merely denote a future intent of the speaker and those words which contractually bind*105 the speaker to perform some future act are frequently so slight that memory, especially when unconsciously stimulated by the self-interest of the witness, might cause him to recall the conversation with slight inaccuracies. For example, in 1938 the father might well have told the son that when he graduated the father expected to take him into partnership. However, in 1947, at the time of the trial, the father's memory of that conversation might well be as he testified, i. e., that "if the son graduated he would take him into partnership." It is well recognized that any interfamily contractual relationship which results in a reduction in tax liability must be subjected to special scrutiny. . We are not persuaded that the father in this case has established a contractual relationship between himself and his son pertaining to the son's college course.
However, assuming the reliability of the memory of the witness, the alleged contractual offer did not provide for the payment to the son of the $ 9,000 which was transferred to him in 1942, nor for any other specific amount, and the contract, if it existed, *106 so far as any payment of money is concerned, is too indefinite to be enforceable.
Furthermore, apparently neither the father nor the son, in 1942 at the time the payment to the son was made, considered the $ 9,000 to be in satisfaction of a contractual obligation. Both the father and the son reported the transaction to the Bureau of Internal Revenue as a gift. It is therefore our conclusion that the son did not contribute new capital of his own to the partnership.
It is also clear that during the entire year of 1943 Harold was with the military forces and rendered no service to the partnership, vital or otherwise.
It is far from clear also as to whether Harold ever received any income from the partnership for the taxable year involved, except a disbursement which the partnership made to pay Harold's income tax on the distributive share which he certainly did not get during that year, if ever. This share was kept in the partnership capital and entered to the credit of Harold. However, it remained in the partnership *238 until its liquidation. As to the manner in which it was included in the corporation assets, the record does not show. In the corporation the father and the*107 two sons held the same proportionate amount of stock as the father, Harold, and Marion had held in the partnership. We know that Harold and Marion withdrew nothing from the partnership for the three years 1943, 1944, and 1945. We also know that the father made substantial withdrawals during 1943 and the first half of 1944, but the record is silent as to what he withdrew in the last half of 1944 or during 1945. Therefore, with the income of Harold and Marion, as trustee for Kenneth, remaining in the business while the father withdrew an undetermined amount from the business, it would seem that when the corporation was organized, with the two boys having exactly the same share in the corporation that they had in the partnership, they at least failed to get their proportionate income from the partnership, if they got anything at all. Furthermore, during the taxable year and the two succeeding years all of the income of the two boys, except sufficient thereof to pay the income taxes of the boys, remained in the partnership and was administered by the father in the same manner as he had administered his business under individual proprietorship. During this time the father also signed*108 contracts as an individual. He says this was because his son was in the Army and his signature could not easily be obtained. Whatever the reason, the contracts were individual contracts of the same character as those entered into by the father when he was in business for himself.
Petitioner, however, contends that, since he and Harold intended to enter into a bona fide partnership in December of 1941, and since that intention was thwarted by the requirements of the war, the partnership should be recognized for income tax purposes. The petitioner quotes from the decision in :
When the existence of an alleged partnership arrangement is challenged by outsiders, the question arises whether the partners really and truly intended to join together for the purpose of carrying on business and sharing in the profits or losses or both. And their intention in this respect is a question of fact, to be determined from testimony disclosed by their "agreement, considered as a whole, and by their conduct in execution of its provisions."
Petitioner also quotes the same words from .*109
The petitioner argues that the record is clear that ever since 1936 he and his son Harold had established a definite intention to form a bona fide partnership and that when the partnership so intended is formed it should be recognized for income tax purposes. It seems obvious to us that the "intention" to which the cited authorities refer *239 is one pertaining to the taxable year under consideration by the Court. The Court is not discussing an intention to form a partnership at some indefinite future year. The intent discussed refers to the intention of the parties at the time the partnership agreement is entered into.
The case before us is not one where the partnership, after being actually formed and after functioning for a part of the taxable year, was prevented from operating throughout the year by the taking of one of the partners into the military service. In the case at bar Harold had been in the armed forces for six months prior to signing the partnership agreement. When he signed that agreement, providing that he should give his "entire time and attention to said business," both he and his father knew that the performance of the agreement would be impossible. *110 See .
Petitioner relies heavily upon a recent decision of the Fifth Circuit Court of Appeals in which the Tax Court was reversed. . In that case Culbertson, Sr., was in partnership with one Coon. Culbertson had four sons in whom Coon had exhibited interest to the extent that he had provided financially for their education. The partnership for many years had been engaged in breeding and feeding cattle. Coon was particularly interested in a fine strain of Hereford cattle which he had developed through the years. In 1939 Coon's health failed and it was decided to liquidate the partnership. Culbertson offered Coon a price for Coon's share of the registered cattle. Coon agreed to accept Culbertson's offer, provided Culbertson would sell the cattle to his four sons on credit and take the four sons into the partnership with him.
These boys had each worked on the ranch, beginning at twelve years of age, and Coon realized that they would be able to carry on his herd and preserve the high quality of the breeding. Culbertson accepted Coon's proposition*111 and entered into a partnership with his sons, Culbertson contributing his half interest in the cattle and the sons giving the father promissory notes for their shares. Subsequently, the father was largely repaid on the notes from the sale of partnership assets and the balance remaining due the father was canceled. The partnership was formed in October 1939. The tax years involved were 1940 and 1941. The World War in 1941 took all of the boys into the military service. The Commissioner determined that the entire income from the Culbertson family partnership was taxable to the father.
A number of important distinctions are obvious between the Culbertson case and the one at bar. In the cited case the sons had actively worked on their father's ranch for a number of years prior to the formation *240 of the partnership. They worked for the partnership from October 1939 until the undesignated day when they were called to military service. They performed vital services in preserving the registered Hereford herd. By the very act of going into the partnership the sons contributed to the partnership capital by procuring from Coon a reduced price on the Hereford cattle.
The *112 opinion in the Culbertson case contains some broad generalities on the question of intent, such as the following:
It was the purpose and intent of all the parties to form an actual, real and bona fide partnership between Culbertson and his four sons, with the full expectation and purpose that the boys would, in the future, contribute their time and services to the partnership. We do not consider that it is illegal, income-tax-wise or otherwise, for a partnership to be formed in consideration or contemplation, of services rendered, or to be rendered, by the partners.
The petitioner has applied the above quotation to the facts in the case at bar. We doubt very much if the Circuit Court ever intended its words to have such a broad application. However, it is not necessary for us to discuss this point, because of the clear factual distinctions between the Culbertson case and the case at bar.
It is our conclusion that in the taxable year the income from the family partnership of petitioner's family should be taxed to the petitioner.
Decision will be entered for the respondent.