- 67 -
Commissioner, 92 T.C. 423, 443 (1989), affd. 930 F.2d 372 (4th
Cir. 1991)).
At the time the R & D Agreement was executed, the costs of
any research or experimentation to be conducted on Turtleback I
had not been estimated. Under that agreement, HJI was to be
responsible for all of the costs of operating Turtleback I. HJI
would make all of the decisions relating to its operations and
the putative research or experimentation, including deciding
exactly what research or experimentation, if any, would be done.
Although JDP purportedly paid a fixed contract fee for the
putative research projects delineated in the R & D Agreement, at
the time that agreement was executed neither party to the
agreement expected HJI to carry out the described projects.
HJI, moreover, did not plan to make a profit from the
receipt of the R & D contract fee. The fee was to provide HJI
with working capital and financial resources to develop the
jojoba plantation and conduct any research and development
projects. Its profit would come only from operating the jojoba
plantation.
HJI, furthermore, expected to, and did, use the results of
its putative research or experimentation activities on all of the
Hyder Jojoba plantations. HJI shared in the potential risks of
failure and rewards of successful research or experimentation.
Under such circumstances, we conclude that JDP did not pay
HJI $360,000 in consideration for obtaining ownership of the
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