J. M. Tindall a chattel mortgage lien against all property herein conveyed until said payment is made in full; and this instrument shall also operate as a note to the said J. M. Tindall evidencing the agreement herein made. It is agreed and understood from this date on there is here now created a partnership between J. M. Tindall and James Ray Tindall which partnership shall be known as Tindall and Son Cotton Oil Mill in which concern the said J. M. Tindall shall have a two-thirds (%rds) interest and the said James Ray Tindall a one-third (rd) interest, which said partnership shall continue until mutually dissolved or dissolved by operation of law. It is agreed and understood that said partnership shall operate at Twitty, Texas, or at such other places as may be mutually agreed upon between the parties hereto. It is agreed and understood that both parties hereto will share in all profits of said partnership to the extent of rds for J. M. Tindall and rd for James Ray Tindall and they shall likewise be liable for any loss in the proportion above set forth. It is agreed and understood that accurate books and accounts will be kept by said partnership and that each party hereto shall have free access to said books and may have same audited at any time that either partner hereto may desire. It is agreed and understood that neither partner hereto will sell his interest in said partnership without first giving to the other partner the right to buy the same at the same price at which said partner may be able to sell his interest to any other person which means that either partner hereto shall have the right to buy the interest of the other partner at and for any sum he may get should he sell to a party other than to the partner herein. It is agreed and understood that the said J. M. Tindall shall be in operation of said partnership and shall conduct the affairs thereof but shall be conducted as a partnership and an account made to said partnership in accordance with the interest of each one therein. WITNESS Our hands to this agreement made in triplicate, each copy of which shall be considered an original, and which will be considered also as a Bill of Sale, Chattel Mortgage, Note and Partnership Agreement, this the 31st day of May, 1944. [Signed] JAMES R. TINDALL J. M. TINDALL On July 24, 1944, with the written consent of the petitioners, James R. Tindall, then 19 years old, had his minority disabilities removed by the District Court of Wheeler County, Texas, a court of competent jurisdiction. Paragraph III of his petition to that court stated: That your petitioner has become the owner of certain property, both real and personal, and that it has become necessary for him to assume management and control of said property, and to contract and perform other functions in connection therewith. On October 15, 1945, J. M. Tindall & Son Cotton Oil Mill filed a partnership return of income for the fiscal year ended May 31, 1945, wherein it reported a loss of $6,692.60 from the operations of the cotton oil mill, which amount was shown to be distributable as follows: J. M. Tindall____ Total loss____ (3) $4, 461. 74 6,692. 60 The return, prepared by an independent accountant, was executed by petitioner as a partner, and it reported that the alleged partnership was organized on June 1, 1944. On October 15, 1945, petitioners filed their individual income tax returns for the fiscal year ended May 31, 1945, reporting a net loss of $9,085.45 from their various business enterprises and no tax liability. In arriving at this loss, petitioners treated $4,461.74 as deductible from gross income as their community share of the partnership loss reported in the partnership return. On August 15, 1946, J. M. Tindall & Son Cotton Oil Mill filed a partnership return of income for the fiscal year ended May 31, 1946, wherein it reported a loss of $50,492.49 from the operations of the cotton oil mill, which amount was shown to be distributable as follows: (%) --- $33, 661. 66 (%). J. M. Tindall____ Total loss___. 16, 830. 83 50, 492. 49 The return, prepared by an independent accountant, was executed by petitioner as a partner, and reported that the alleged partnership was organized on June 1, 1944. On August 15, 1946, petitioners filed their individual income tax returns for the fiscal year ended May 31, 1946, reporting a loss of $12,865.84 from their various enterprises and no tax liability. In arriving at this loss, petitioners treated $33,661.66 as deductible from gross income as their community share of the partnership loss reported in the partnership return. On or about April 28, 1947, petitioner and his son executed the following instrument: THE STATE OF TEXAS COUNTY OF WHEELER WHEREAS by instrument dated May 31, 1944, J. M. Tindall did bargain, sell and convey unto James Ray Tindall a one-third interest in the Tindall Cotton Oil Mill located in Twitty, Texas, being a one-third interest in the buildings in which said mill operates, machinery and equipment of every nature whatsoever used directly or indirectly in connection with said mill, the consideration being $30,000.00 payable $3,000.00 per year with interest at four per cent per annum, the first payment being due on or before May 31, 1947, and a similar payment on or before May 31 of each succeeding year and, WHEREAS it was agreed and understood that such instrument should operate not only as a bill of sale but also as a Chattel Mortgage giving the said J. M. Tindall a lien against all the property conveyed; NOW, THEREFORE, in consideration of the full and complete cancellation of said indebtedness for all intents and purposes, and $10.00 cash in hand paid by J. M. Tindall to James Ray Tindall, the said James Ray Tindall does hereby bargain sell and convey unto the said J. M. Tindall his undivided one-third interest in the Tindall Cotton Oil Mill located at Twitty, Texas, said interest conveyed being a one-third interest in and to said buildings in which said mill oper ates, machinery and equipment of every nature whatsoever used directly or indirectly in connection with said mill; and the said J. M. Tindall does hereby release said Chattel Mortgage as contained in the above described instrument for all intents and purposes and a signed copy of this instrument shall be suffi cient instructions to the County Clerk to release said Chattel Mortgage Lien. Witness our hands in triplicate, each copy of which shall be considered an original, this the 28th day of April 1947. [Signed] J. M. TINDALL JAMES RAY TINDALL After an examination of the alleged partnership's books and records for the fiscal years 1945 and 1946, the internal revenue agent in charge, on December 15, 1947, advised the alleged partnership of his determination showing corrected losses as follows: Loss per returns. Increase.. Decrease. These losses were shown to be distributable as follows: J. M. Tindall (2/3).... James R. Tindall (1/3). Total losses.. On September 3, 1947, after conferences with the internal revenue agent and his independent accountant, petitioner, as a partner in J. M. Tindall & Son, signed a Form 875, "Acceptance of Revenue Agent's Findings by a Partnership," showing the above increase in loss, $3,914.82 for the fiscal year 1945, and the above decrease in loss, $1,527.38 for the fiscal year 1946. After an examination of the books and records of the petitioners, on May 12, 1948, the Commissioner mailed to each petitioner a statutory notice of deficiencies in tax and 5 per cent penalties for the fiscal years 1945 and 1946. In arriving at their taxable net income for each year, respondent allowed as a deduction petitioner's share of the corrected partnership loss for each year, as previously determined above. Various adjustments to net income were made in the notices of deficiency in the form of additions to income from interest, rents and royalties, business, capital gain, partnerships, and other sources, and 5 per cent penalties were determined. In their petitions initiating these proceedings petitioners merely assign error in respondent's determination that petitioner J. M. Tindall and his son James R. Tindall were partners in the J. M. Tindall & Son Cotton Oil Mill during the taxable years and in respondent's consequent allocation of one-third of the operating losses of that business during the taxable years to James R. Tindall rather than to petitioners, along with the other two-thirds. Petitioners also claim in their petitions the right to carry back a net operating loss from the fiscal year ended May 31, 1946, to the fiscal year ended May 31, 1945, in the amount of $4,759.68. It was not the intention of petitioner J. M. Tindall and of his son, James R. Tindall, either at the time the agreement of May 31, 1944, was entered into or during the fiscal years ended May 31, 1945, and May 31, 1946, in good faith and acting with a business purpose to join together in the present conduct of the business of the Tindall Cotton Oil Mill at Twitty, Texas, referred to in that agreement. James R. Tindall was not a partner with petitioner J. M. Tindall during the above fiscal years. OPINION. JOHNSON, Judge: We have before us in these proceedings the unusual situation of the Commissioner urging that there was a partnership between petitioner J. M. Tindall and his son during the taxable years here in question, and petitioners urging that there was not. This claim was first made by petitioners in their petitions initiating these proceedings. It is fundamental that a taxpayer appealing to this Court may set up as a ground of appeal from a proposed additional assessment a right to a deduction which was not claimed in the original return or at any hearing before the Commissioner. Gutterman Straus Co., 1 B. T. A. 243. We have disposed of this issue in our finding of fact that James R. Tindall was not a partner with petitioner J. M. Tindall during the fiscal years ended May 31, 1945 and 1946. In making that finding we have been guided by the principles set forth by the Supreme Court in the recent case of Commissioner v. Culbertson (1949), 337 U. S. 733. In that case the Court said that one should not be taxed as a partner merely on the basis of "the intent to provide money, goods, labor, or skill sometime in the future," and that "our decision in Commissioner v. Tower, supra [327 U. S. 280], clearly indicates the importance of participation in the business by the partners during the tax year." In these proceedings it is plain from the facts that there was no participation by James R. Tindall, petitioners' son, in the business of the Tindall Cotton Oil Mill during the tax years. At the time of his signing the agreement of May 31, 1944, upon which signing respondent contends the son became a partner, the son was in the Army, home on a three-day pass. He remained in the Army until February 13, 1946. He then reentered Oklahoma A. & M., not going to work for petitioner until he graduated in 1949. He had never previously worked for petitioner in the cotton oil mill business or been in any business in his life. Obviously, James R. Tindall did not provide labor or skill to the alleged partnership during the taxable years ended May 31, 1945, and May 31, 1946. As the Supreme Court said in footnote 6 in its opinion in the Culbertson case: Of course one who has been a bona fide partner does not lose that status when he is called into military or government service, and the Commissioner has not so contended. On the other hand, one hardly becomes a partner in the conventional sense merely because he might have done so had he not been called. The cases of Trapp v. Jones (Dist. Ct., W. Dist. Okla.), 87 Fed. Supp. 415, and Isaac Blumberg, 11 T. C. 663, cited by respondent in support of the proposition that the fact that the son was in military service at the time the alleged partnership was formed does not militate against his becoming a partner, are distinguishable for the reason that in both those cases the partnership had been formed prior to the entry of the son into the military service. But respondent maintains that the son, James R. Tindall, made a valid contribution of capital and that such contribution is evidentiary that he was a bona fide partner. We do not agree that the son made any contribution of capital to the alleged partnership. The agreement of May 31, 1944, recited that the consideration for the conveyance of a one-third interest in the cotton oil mill from petitioner to his son was $30,000, payable at the rate of $3,000 per year beginning May 31, 1947, with interest at the rate of 4 per cent per annum. Thus the son's alleged capital contribution consisted of a note for $30,000, which petitioner testified was to be payable out of profits. However, at the time the son signed the agreement for the purchase of a onethird interest he was a minor. Under the decisions of the Texas courts the contracts of a minor are voidable. Walker v. Stokes Bros. & Co. (Tex. Civ. App.), 262 S. W. 158. The son had his disabilities as a minor removed on July 24, 1944, two months after signing the agreement. Under Jones v. Teat (Tex. Civ. App.), 57 S. W. (2d) 617, the removal of the disabilities of a minor is as effective in changing his legal status to that of an adult as is the occurrence of his twenty-first birthday. Under that case, by the same token, a minor may effectively, subsequent to the removal of his disabilities, disaffirm before performance a contract which he had entered into prior to the removal of the disabilities. That is what happened here. The first payment on the note was not due until May 31, 1947. Before that time, on or about April 28, 1947, the indebtedness was canceled and the son reconveyed his one-third interest in the business to petitioner. Clearly, then, the agreement was executory and voidable at the time it was entered into |