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According to Dr. Glassley, he expected to recoup his investment
in JDP and earn a few thousand dollars each year for at least 20
years as a result of the commercialization of the jojoba
plantation. He also was aware of and attracted by the potential
tax benefits outlined in the offering with respect to an
investment in JDP.
On their 1981 Federal income tax return, petitioners
Glassley claimed a net loss relating to JDP of $40,530, resulting
in a tax benefit of approximately $20,000. By notice of
deficiency dated March 17, 1989, respondent disallowed the
partnership loss relating to JDP that petitioners Glassley had
claimed for 1981 on the grounds that they had not established:
(1) The claimed amounts arose from transactions that had a
bona fide business/economic purpose or substance, or intent to
make a profit apart from the intended tax consequences of such
transactions;
(2) The research and development expenses were
not [sic] incurred in connection with a trade or
business within the meaning of Internal Revenue Code
Section 174;
(3) The expenses claimed by the partnership were
incurred or paid by the partnership, or if incurred or
paid, the expenses were not [sic] ordinary and
necessary business expenses;
(4) Your basis in the partnership is sufficient
to entitle you to claim a partnership loss deduction,
or;
(5) The partners are "at risk" within the meaning
of Internal Revenue Code Section 465.
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