- 60 -
operation to provide for recovery of such expense." Gross,
furthermore, in effect acknowledged that the only effective use
of any discoveries obtained would have been on a large-scale
operation much greater than the 60 acres allocated to JDP. Even
Whittaker testified that JDP, as a 60-acre partnership, was "not
a self-sustaining unit". Petitioners, however, would have us
believe that they expected not only to recover the full cost of
the putative research or experimentation but also to earn a
substantial profit from operations on the 60-acre plantation. In
our view, given the structure of the putative research and
development program, such an expectation would be pure fantasy.
The self-serving nature of the claims, together with the absence
of any evidence to support them, makes such testimony
implausible.
Based on this record, we are convinced that the R & D
Agreement was without economic substance. In our view, the R & D
Agreement was mere window dressing, devised to attract investors
for HJI's jojoba farming operation through the promise of a large
upfront deduction for what in actuality were capital
contributions. We note that the parties paid scant attention to
the terms of the offering or the R & D Agreement. For example,
the offering unequivocally states that, unless a minimum of 22
limited partnership units were sold by December 21, 1981, the
offering would be terminated and any subscription payments would
be returned. Only six limited partners had subscribed by
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