The flight instructor was providing instruction to the private pilot in the tailwheel equipped vintage airplane. The flight instructor was seated in the rear seat and the private pilot was seated in the front seat. On the downwind leg of the airport traffic pattern, the flight instructor told the private pilot to apply carburetor heat. The carburetor heat knob and fuel selector handle were located near each other, behind the private pilot, who inadvertently moved the fuel selector handle, rather than the carburetor heat knob. The flight instructor moved the fuel selector handle back and took control of the airplane to demonstrate a touch-and-go landing. During subsequent initial climb, about 50 to 100 ft above ground level, the engine lost all power and the flight instructor performed a forced landing into trees, resulting in substantial damage to the wings and fuselage. The flight instructor reported that there were no preaccident mechanical malfunctions or failures with the airplane. He added that it was possible that he did not position the fuel selector handle back to the correct position. Subsequent examination of the fuel selector handle by a mechanic revealed that the fuel valve operated normally. Given this information, it is likely that the flight instructor failed to position the fuel selector handle correctly, which subsequently resulted in a total loss of engine power due to fuel starvation.