- 70 -
or business at some time and the activities must be sufficiently
substantial and regular to constitute a trade or business. Green
v. Commissioner, supra at 687-689. Where a partnership is
claiming deductions under section 174, the controlling inquiry is
whether there is a realistic prospect that the technology to be
developed will be exploited in a trade or business of the entity
in question. See Diamond v. Commissioner, 92 T.C. at 443; see
also Kantor v. Commissioner, 998 F.2d 1514 (9th Cir. 1993), affg.
on this issue T.C. Memo. 1990-380; Spellman v. Commissioner, 845
F.2d 148, 149 (7th Cir. 1988), affg. T.C. Memo. 1986-403; Harris
v. Commissioner, T.C. Memo. 1990-80, supplemented by 99 T.C. 121
(1992), affd. 16 F.3d 75 (5th Cir. 1994). Mere legal entitlement
to enter into a trade or business does not satisfy this test.
Instead, "The legal entitlement must be backed by a probability
of the firm's going into business." Levin v. Commissioner, 832
F.2d at 407; Kantor v. Commissioner, supra at 1520; LDL Research
& Dev. II, Ltd. v. Commissioner, T.C. Memo. 1995-172; Stankevich
v. Commissioner, T.C. Memo. 1992-458. But cf. Scoggins v.
Commissioner, 46 F.3d 950 (9th Cir. 1995) revg. T.C. Memo. 1991-
263, (where the Court of Appeals for the Ninth Circuit concluded
that there was a realistic prospect that the partnership involved
in that case would be engaged in a trade or business). In
Scoggins, the individual taxpayers had directed the research
themselves, had experience in marketing, and had the ability to
provide the partnership with sufficient capital to manufacture
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