- 64 -
Memo. 1992-587, affd. without published opinion 42 F.3d 1401 (9th
Cir. 1994); Reinke v. Commissioner, T.C. Memo. 1981-120.
In view of our conclusion that JDP did not pay HJI for
research or experimentation, we need not further address
petitioners' argument that during the alleged research and
development period Turtleback I was functioning solely as a pilot
or model, and therefore, the costs of its construction are
deductible under section 1.174-2(a)(1), Income Tax Regs. We
note, however, that as the foregoing discussion suggests,
Turtleback I was not a model at all, and that, even if it had
been a model, it would not have been a model for operation by or
on behalf of JDP or its investors.
2. The Expenditures Must Be Paid or Incurred on Behalf of
the Taxpayer
In the instant cases, respondent has conceded that some of
HJI's activities on Turtleback I were research or experimentation
in the experimental or laboratory sense. Petitioners contend
that respondent's concession is dispositive of the question of
the deductibility of the expenditures associated with the
development of Turtleback I. We do not agree. See supra note
19. Such expenditures also must have been incurred on JDP's
behalf.
Section 1.174-2(a)(2), Income Tax Regs., states that the
provisions of section 174(a)(1) "apply not only to costs paid or
incurred by the taxpayer for research or experimentation
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