- 54 -
performed at least some qualifying research on JDP's behalf that
was experimental in nature.19 Petitioners contend that, given
Parr's admission that the nutrient study had to occur on an
existing jojoba plantation, and that all of Turtleback I was used
for the qualifying research, under section 1.174-2(a)(1), Income
Tax Regs., the Commissioner must allow petitioners to deduct the
expenditures associated with the development of the purported
"model" jojoba plantation. We do not agree.
Any business arrangement may be scrutinized to ascertain
whether its form comports with economic reality. Estate of
Helliwell v. Commissioner, 77 T.C. 964, 983 (1981); see Frank
Lyon Co. v. United States, 435 U.S. 561, 573 (1978); Commissioner
v. Court Holding Co., 324 U.S. 331 (1945); Gregory v. Helvering,
19 On brief, respondent concedes that some of HJI's activities
connected with the jojoba plants, specifically relating to
nutrient studies, did constitute research and experimentation.
Respondent maintains, however, that less than 20 percent of HJI's
efforts on the property ostensibly allocated to JDP constituted
research and experimentation. Respondent does not concede that
the expenditures were incurred in connection with JDP's trade or
business. In light of respondent's concession, we make no
determination here as to whether HJI's activities on Turtleback I
rose to the level of research and experimentation as contemplated
under sec. 174. However, even if research and experimentation
did occur on Turtleback I, for the reasons discussed infra, we do
not agree that such activities were incurred on JDP's behalf. We
are not bound by conclusions or stipulations of law. E.g.,
Estate of Sanford v. Commissioner, 308 U.S. 39, 51 (1939); Swift
& Co. v. Hocking Valley Ry. Co., 243 U.S. 281, 289 (1917);
Saviano v. Commissioner, 765 F.2d 643, 645 (7th Cir. 1985) affg.
80 T.C. 955 (1983); Commissioner v. Ehrhart, 82 F.2d 338, 339
(5th Cir. 1936), revg. and remanding a Memorandum Opinion of the
Board of Tax Appeals; Yagoda v. Commissioner, 39 T.C. 170, 183
n.7 (1962), affd. 331 F.2d 485 (2d Cir. 1964).
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