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jojoba plantation on 60 acres, or that if it could, that JDP
would have had sufficient funds20 to continue such operations.
Nor is there any evidence that any limited partner could or would
have stepped in to farm Turtleback I.
Although the parties took great care to clothe the
transaction in the garments of research or experimentation, when
we view the transaction closely, we are convinced that the
limited partners were not paying for research or experimentation
but for the right to share in the profits from HJI's jojoba
farming enterprise. Under such circumstances, we conclude that
the disputed payments were in the nature of capital
contributions. Section 174 does not permit a deduction for a
contribution to capital. See Safstrom v. Commissioner, T.C.
20 The record does not reveal JDP's financial status as of Jan.
1, 1987, the purported commencement date of the Turtleback Jojoba
Venture. However, we note that the limited partners were not
obligated to contribute any funds to JDP beyond their initial
partnership unit costs. Eight full and two one-half units in JDP
were sold, resulting in total capital contributions from the
limited partners of $450,000. According to the offering, the
general partner was to contribute $1,000 to JDP. Therefore, at
the most, JDP would have contributed capital of $451,000. JDP's
partnership return for 1981 reflected the R & D Agreement
contract fee of $360,000, syndication costs of $28,714,
organizational costs of $12,125, and legal and accounting fees of
$8,250, which totaled $408,289. As the transaction was
structured, JDP could earn no income from its inception on Dec.
31, 1981, through Dec. 31, 1986. Accordingly, JDP's operating
expenses for that period of time had to be paid from the
remaining $41,711 contributed capital (unless advanced by the
general partner). According to the offering, the general partner
was to be paid $10,000 for each of 1981 through 1987. It appears
unlikely, therefore, that as of Dec. 31, 1986, JDP would have had
the financial resources to take over operations on Turtleback I
if HJI had decided not to continue operations on that plot.
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