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In our view the R & D Agreement was designed and entered into
solely to provide a mechanism to disguise the capital
contributions of the limited partners as currently deductible
expenditures and thus reduce the cost of their participation in
the farming venture.
As the transaction was structured, JDP could obtain no
economic benefit solely from the putative research or
experimentation apart from the potential tax benefits. No
patents or inventions were expected to be developed. In
addition, any "discoveries" obtained through HJI's efforts were
to be shared, without compensation, with other jojoba growers.
Consequently, JDP could receive no marketable asset from HJI's
putative research or experimentation activities. Plainly, no
unrelated party would have paid HJI for a similar research and
development contract under circumstances like those presented in
this case.
Petitioners, nonetheless, contend that the R & D Agreement
had independent value. They assert that, as of December 31,
1981, the R & D Agreement had a fair market value of $382,000,
and that the value of the anticipated benefits of the research
was greater than the $360,000 JDP paid HJI under the R & D
Agreement. In addition, they contend that the value of the cost
savings to the jojoba industry as a whole resulting from the
nutrient studies exceeded the amount JDP paid HJI under the R & D
Agreement. Petitioners contend further that the parties to the
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