*48 Decisions will be entered under Rule 50.
Petitioners Clarence B. Ford, Wade E. Moore, and Vern Forcum each originally had a 25 per cent interest in the Forcum-James Construction Company, a partnership, prior to 1940. In 1940 and 1941, each petitioner, with the consent of the other partners, transferred portions of his 25 per cent interest to members of his respective family. After such transfers a partnership agreement was entered into admitting to the partnership of Forcum-James Construction Company the parties to whom such transfers had been made. Held, these partnership agreements were entered into by the parties with a bona fide intent in good faith and acting with a business purpose to join together in conducting a contracting business as a partnership, and are valid for tax purposes.
*200 Respondent determined deficiencies in income taxes in these proceedings for the calendar year 1943, as follows:
| Taxpayer | Docket No. | Deficiency |
| Clarence B. Ford | 9391 | $ 138,477.18 |
| Estate of Wade E. Moore, deceased, Madge M. Moore, | ||
| executrix | 9392 | 125,482.17 |
| Vern Forcum | 9393 | 88,012.33 |
*49 In Docket No. 9392 the petition was filed by Wade E. Moore who died on October 23, 1951. By order of this Court dated December 11, 1951, the caption was changed to the title listed above.
These cases also involve the year 1942 because of the Current Tax Payment Act. They have been consolidated and involve a single common issue, viz., whether the partnership of Forcum-James Construction Company, as agreed upon by the several partners, was a valid partnership to be treated as such under the provisions of the Internal Revenue Code. Respondent determined that each petitioner owned a 25 per cent interest in the partnership throughout the years 1942 and 1943. Petitioners assign error to such determination and allege respectively that Clarence B. Ford owned a 6 1/4 per cent interest, *201 Wade E. Moore owned an 8 1/3 per cent interest, and Vern Forcum owned a 15 per cent interest.
Additional minor adjustments have been settled by agreement of the parties and will be given effect under Rule 50.
FINDINGS OF FACT.
The petitioners in this case, Clarence B. Ford, Wade E. Moore, and Vern Forcum, each filed Federal income tax returns for the years 1942 and 1943 with the collector of internal*50 revenue for the district of Tennessee. Clarence B. Ford and Vern Forcum resided in Dyersburg, Tennessee, and Wade E. Moore resided in Obion, Tennessee.
Forcum-James Construction Company, a partnership, hereinafter called Forcum-James, began business in 1933 at Dyersburg, Tennessee. The partners were Vern Forcum, Wade E. Moore, R. M. Ford, and Clarence B. Ford; each had a 25 per cent interest. Wade E. Moore, hereinafter referred to as a petitioner, died on October 23, 1951, and his estate is a party in this proceeding. Forcum-James has engaged continuously in business until the present date. The principal source of income of Forcum-James was through its interest as a partner in various other partnerships and joint ventures engaged in the contracting business.
During the years 1942 and 1943, and prior thereto, Forcum-James owned a 50 per cent interest as a partner in the business known as W. R. Aldrich & Company, which latter company was engaged in the general contracting business but more specifically in the construction of roads, streets, and bridges. During this same period, Forcum-James had a 50 per cent interest in another partnership known as L. O. Brayton Company which *51 specialized in rural electrification construction. And Forcum-James also had a 50 per cent interest in a third partnership known as Pioneer Contracting Company which performed general contracting but specialized in "heavy construction and heavy dirt moving projects." These three subpartnerships owned their equipment and employed their own personnel. When any one of the three subpartnerships completed a job and if it made a profit on the job, the profit was divided 50 per cent to Forcum James and the remaining 50 per cent to the other partners. When any one of the three subpartnerships engaged in active construction work, Forcum-James would furnish its pro rata share of the capital necessary to perform the job.
In addition to its income through subpartnerships, Forcum-James from time to time would enter into joint ventures with other independently operating contracting concerns, furnishing capital for the job and receiving its pro rata share of any profits. Forcum-James would sometimes enter into subcontracts in its own name for the performance *202 of a particular part of a general contract. Since Forcum-James did not have any regular employees and it did not own any equipment, *52 it employed others to do the actual work. Forcum-James at all times maintained as large an amount of capital as it could. An important material and necessary function of Forcum-James was the supplying of capital for contracting jobs, whether the jobs were taken in the name of and performed by any one of the subpartnerships, a joint venture, or in the name of Forcum-James. In addition to capital, the four original partners had skill and contacts to obtain business and to select those who were to perform the work. Forcum-James also made some investments in stock and bonds from which it received income from time to time.
Through its investments and activities, Forcum-James had accumulated a large amount of capital by December 31, 1940, and on that date the books of the company showed the following amounts as the capital accounts of the original four members of the partnership:
| Name | Amount |
| Vern Forcum | $ 109,423.14 |
| Clarence B. Ford | 109,423.13 |
| R. M. Ford | 109,423.13 |
| Wade E. Moore | 109,423.13 |
Discussions were had between Clarence B. Ford and his wife Gladys B. Ford off and on for two or three years prior to the end of 1940, and on December 31, 1940, Clarence B. Ford transferred*53 one-fourth of his interest in the Forcum-James partnership to his wife Gladys B. Ford. She knew nothing about the contracting business, except as a wife ordinarily has general knowledge of her husband's business, but she knew that the contracting business entailed large risks. On December 31, 1940, Clarence B. Ford also made an irrevocable transfer in trust of a 25 per cent interest of his original capital account in Forcum-James to each of his sons, William Kent Ford and Jere B. Ford, as beneficiaries, their ages being 11 and 9, respectively. Charles F. Moore (who was not related to Wade E. Moore) was trustee with broad powers of management and control and with all the duties and rights of a partner, but limited to the amount of the trust property. The trust was to terminate when William Kent Ford attained age 27, with contingent remainders over. The trust instrument directed that the trustee's share of the partnership's distribution of capital and of its profits be distributed to him and become part of the trust assets; that the trustee in his discretion distribute the income of the trust as he deemed advisable, necessary, or desirable to the beneficiaries or to others on their*54 behalf; that the trustee might cause any of the trust property to be registered in the name of his nominee, to take and keep the same unregistered, in bearer form, or in such condition *203 that the same would pass by delivery without disclosure, in any case, of any trust, and that the trust did not relieve the grantor of his parental obligation for maintenance, support, and education of the beneficiaries. Charles F. Moore, the trustee, was experienced in the business as office manager of the partnership. He received compensation of $ 2,500 a year as trustee.
Both new partners, Gladys B. Ford and Charles F. Moore as trustee, signed contracts as partners and discussed the partnership business. At the time of the transfer, Gladys B. Ford had a separate estate of about $ 20,000. Gladys B. Ford retained her own bank account and she also had her own separate lock box in which she kept investments that she purchased in her own name with her profits from the partnership. Charles F. Moore as trustee for William Kent Ford and Jere B. Ford received his proportionate share of the income from the partnership, which he invested and also used to pay taxes. Clarence B. Ford filed a gift*55 tax return reporting the gift of a 6 1/4 per cent interest in Forcum-James to his wife and the gift of a 12 1/2 per cent interest in that business to Charles F. Moore as trustee for his two sons.
On February 11, 1941, Ford addressed a letter to the partnership stating that with the knowledge and approval of the original partners he had made gifts effective at midnight on December 31, 1940, to his wife and to his sons, in trust, of a 6 1/4 per cent interest each in Forcum-James, leaving him with a 6 1/4 per cent interest in capital account and profits and losses of that partnership; that the donees thereby became partners with the same rights and obligations as any of the other partners, which necessitated "a reallocation of my share of the partnership profits or losses" beginning January 1, 1941; that "My intention is to make an irrevocable gift to my wife and two children and not merely an assignment of income" and "To carry out my intention, a copy of this letter is furnished" to the partners and the donees or their trustee, and further that the partnership was thereby "instructed" to transfer to his wife and the trustee their respective shares of his 25 per cent interest in the*56 partnership capital account. Copies of this letter were sent to the other original members of the partnership, to Mrs. Ford, and to Charles F. Moore, trustee. The other partners agreed to admit Gladys B. Ford and the trustee for the sons into the partnership of Forcum-James.
Wade E. Moore's family consisted of his wife Madge M. Moore and one daughter Marion Moore, the latter being 19 years of age in 1940. Marion Moore married in 1941 and her name then became Marion Moore Jones. Effective December 31, 1940, Wade E. Moore gave to his wife Madge M. Moore one-third of his interest in the Forcum-James partnership. On December 31, 1941, he further conveyed another one-third of his original 25 per cent interest in an irrevocable *204 trust for the benefit of his daughter. Harry Moultrie, a brother of Madge M. Moore, was selected as trustee for Marion Moore Jones. Both transfers were made with the knowledge and approval of the other partners, and the partnership was notified of the transfers.
Madge M. Moore received distributions of income during all of this period on the basis of her 8 1/3 per cent interest in the partnership. She deposited her share of the profits in her personal*57 bank account and at no time returned any of those funds to her husband or applied any of same on any of his obligations or for the support of the family. She has made investments and has paid income taxes. She had her own separate lock box in which she kept her securities and her husband did not have access to it.
Harry Moultrie as trustee became an actual bona fide partner in the business and represented Marion Moore Jones in the business. Being a full time grocer, Moultrie spent little time in Forcum-James. Harry Moultrie was paid $ 500 as compensation for acting as trustee. On January 30, 1943, when Marion Moore Jones became 21 the trustee delivered all of the trust papers and other documents relating to the trust to her and made a complete accounting to her for all monies received by him as trustee and turned over to her all of the investments and income that he had received. She entered into the partnership and has remained a member of the partnership since that time, and when she did so it was her intent actually to become a partner in the business and to risk her money that was already in the business, as well as any other property that she might have. Marion Moore Jones*58 has received her share of the income from the partnership and never used any of same to pay any obligations of Wade E. Moore nor has she given any of it to him, but has made investments in her own name in stocks and bonds and other property and has paid income taxes.
The gifts by Wade E. Moore of 8 1/3 per cent interests in the business to each, his wife and Harry Moultrie as trustee for his daughter, were absolute and unconditional and he intended that the donees become bona fide partners in the business and it was the bona fide intent of the donees to become partners in said business. The other partners agreed to admit Madge M. Moore and Harry Moultrie as trustee for Marion Moore Jones into the partnership of Forcum-James.
Vern Forcum was a resident of Dyersburg, Tennessee, and he had one son, Donald. His son became 21 in March of 1941. Donald, from time to time before he was 21, worked for contracting firms in which Forcum-James had an interest. He was studying civil engineering in college for the purpose of qualifying himself to engage in the contracting business. When Vern Forcum discussed with the other partners making his son a partner in the business they agreed to *205 *59 it. After his son had become 21 in March 1941, Vern Forcum, effective April 1, 1941, gave to his son two-fifths of his interest in the business, or a 10 per cent interest in the partnership. On April 18, 1941, he wrote a letter to the partnership setting forth his action which was agreed to in writing by the other partners. From and after April 1, 1941, when Donald received the gift of a 10 per cent interest in the partnership from his father, he has continuously remained a partner in the business with a 10 per cent interest and he has received his share of the profits from the business and he has never returned any of his share of the profits to his father or paid any of his father's obligations with same. He used his share of the profits for making investments in his own name and to pay income taxes. Prior to the transfer, Donald Forcum had a separate estate of under $ 5,000. In 1943, Donald entered the Armed Services and was thus engaged for about three years. When he left he gave his father a written power of attorney to handle his affairs, and while he was gone his father received his share of the profits from the business which he invested in securities or certificates*60 of deposits for Donald. Vern Forcum rented a separate lock box in which he placed these certificates of deposits, bonds, and other investments for Donald. Upon Donald's return from the Armed Services, Vern Forcum accounted to him for all of the income or profits that had been paid on his share during his absence.
After the transfers by Clarence B. Ford, Wade E. Moore, and Vern Forcum in 1941, the partnership continued to function and to operate the same type of business in which it had previously been engaged and the partnership has continuously remained in business up until the present time. The percentages of the interest of each of the partners in the business since the transfers in 1941 have remained the same. Notice of the transfers and of the new partners and their respective interests was given to banks, credit agencies, surety companies, highway departments, etc., altogether some 25 or 30 different companies and businesses. Notice was given to about 15 bonding companies with which the partnership had been doing business.
The books and records of the partnership contained appropriate entries showing the gifts described in detail above and separate capital accounts for *61 the new partners reflecting the book value of their respective accounts in the business. The books and records further show that when Marion Moore Jones became 21 the account of Harry Moultrie, as trustee for her, was closed out and transferred to an account in her name. Petitioners received advice in connection with these gifts from their attorneys and accountants.
Capital was a material, important, and necessary factor in the production of income in the Forcum-James contracting business. Without *206 substantial capital, the business could not operate. The nature of Forcum-James business entailed considerable risks of large amounts of money for the partners. The new partners entering the business in 1940 and later did not perform any services of any consequence. The management continued to be performed by the four original partners and also Charles F. Moore, trustee. All the partners have joined together executing powers of attorney to the four original partners to "sign bid proposals, execute all bond and contract papers necessary for all contract documents."
In 1941, Ralph M. Ford, Clarence B. Ford, Gladys B. Ford, Charles F. Moore as trustee for William Kent Ford and*62 Jere B. Ford, Wade E. Moore, Madge M. Moore, Harry Moultrie as trustee for Marion Moore Jones, Vern Forcum, and Donald Forcum entered into a partnership agreement with bona fide intent and a business purpose to conduct the business of the Forcum-James Construction Company as a general partnership. Each of the partners remained a partner during the years involved here, 1942 and 1943, their respective interests being as follows:
| Partner | Per cent of interest | |
| Clarence B. Ford | 6 1/4 | |
| Gladys B. Ford | 6 1/4 | |
| Charles F. Moore, Trustee for William Kent Ford and | ||
| Jere B. Ford | 12 1/2 | |
| 25 | ||
| Wade E. Moore | 8 1/3 | |
| Madge M. Moore | 8 1/3 | |
| Harry Moultrie, Trustee for Marion Moore Jones | 8 1/3 | |
| 25 | ||
| Vern Forcum | 15 | |
| Donald Forcum | 10 | |
| 25 | ||
| Ralph M. Ford | 25 | |
| 100 |
The trusts which Clarence B. Ford created by making Charles F. Moore trustee for his children William Kent Ford and Jere B. Ford, and which Wade E. Moore created by making Harry Moultrie trustee for his daughter Marion Moore Jones were bona fide trusts created for the benefit of the respective beneficiaries. The respective settlors did not have any substantial control over or interest in the corpus or income*63 of either trust.
OPINION.
Certain minor issues raised by the pleadings have been settled by stipulation. The only issue which remains pertains to the validity of the partnership described in our Findings of Fact. The respondent determined that each petitioner and R. M. Ford owned *207 a 25 per cent interest in the partnership Forcum-James during 1942 and 1943. R. M. Ford is not a petitioner before us. Petitioners allege that the partnership was a bona fide legal partnership and was composed of the partners named in our Findings of Fact and with percentage interests named therein.
We have given the details of this partnership agreement and the surrounding circumstances attending its formation in our Findings of Fact and it is not necessary to repeat them here. We have found that the petitioners and other partners entered into a partnership agreement with bona fide intent and a business purpose to conduct the Forcum-James Construction Company as a general partnership. Having considered all the facts and evidence, we hold the respondent's determination was error.
The question of whether a family partnership is real for income tax purposes depends upon "whether the partners*64 really and truly intended to join together for the purpose of carrying on the business and sharing in the profits and losses or both. And their intention in this respect is a question of fact." . In the Culbertson case the Court also said:
The question is not whether the services or capital contributed by a partner are of sufficient importance to meet some objective standard supposedly established by the Tower case, but whether, considering all the facts -- the agreement, the conduct of the parties in execution of its provisions, their statements, the testimony of disinterested persons, the relationship of the parties, their respective abilities and capital contributions, the actual control of income and the purposes for which it is used, and any other facts throwing light on their true intent -- the parties in good faith and acting with a business purpose intended to join together in the present conduct of the enterprise. * * *
The gist of the respondent's argument is that the alleged partnership was invalid because the new partners performed no important and necessary services, and skill, know-how, *65 and contacts were important to the partnership's success. However, capital was a material, important, and necessary element for success in the Forcum-James contracting business. Without adequate capital there could have been no profits. The testimony shows that this was a hazardous business involving large risks and considerable amounts of money. The fact that capital contributions were gifts is not controlling, if the gifts were absolute and unconditional as they were here. The new partners risked their capital gifts and their entire separate estates by becoming partners. Moreover, the petitioners did not benefit from nor retain dominion or control of the new partners' investments or income in the partnership. The original partners and the new partners entered into the partnership agreement with bona fide intent and a business purpose of risking their capital in this partnership. We hold that the partnership *208 in question was bona fide, valid, and legal. We think that our holding that the partnership here in question was a valid and legal partnership as contended by petitioners under the doctrine*66 laid down by the Supreme Court in the Culbertson case, supra, is in harmony with our decisions in ; ; , and .
In an earlier decision this Court held that this particular partnership involving the same petitioners was invalid for tax purposes for the year 1941. , appeal dismissed because of compromise and settlement (August 15, 1949), . Respondent does not contend that this earlier decision is res judicata for the instant case. Our earlier decision was promulgated on November 29, 1946, relying on . Subsequently, on June 27, 1949, the Supreme Court discussed the meaning of the Tower case in The result of that discussion was to clarify in some important particulars the meaning of *67 the Tower case. Therefore, in the light of the evidence received in these consolidated proceedings at the hearing and the Supreme Court's decision in the Culbertson case we do not feel bound by our earlier decision. We think Commissioner v. Culbertson is controlling here.
Decisions will be entered under Rule 50.
Rice, J., dissenting: The rule laid down by the Culbertson case is that a family partnership is valid for Federal tax purposes if "the parties in good faith and acting with a business purpose intended to join together in the present conduct of the enterprise." (Emphasis added.) I am not only unable to agree with the majority, that a business purpose was shown in this case, but I am compelled to reach the conclusion that the only purpose intended or achieved by the parties, in bringing members of their families into the partnership, was to minimize or to avoid taxes.