- 11 - Respondent disallowed the deductions claimed for costs of goods sold on each of the returns in issue, with the following explanation: It is determined that the losses reported on your 1982, 1983, and 1984 schedule K, Form 1065, U.S. Partnership Return of Income are disallowed for the alternative reasons listed below: 1. It has not been established that the partnership is engaged in a trade or business or that the partnership engaged in the activity with the primary purpose of making a profit. 2. It has not been established that the claimed deductions represent an expenditure for a related [sic] to research and development actually undertaken. 3. It has not been established that the amounts proven to be expended, if any, in relation to alleged research and development are currently deductible, and are not capital expenditures. 4. It has not been established that you had any amount at risk, as defined by section 465 of the Internal Revenue Code. 5. It has not been established that the purported transactions contained any economic reality or substance. In 1995, in relation to settlement negotiations with respondent’s Appeals Division, Montelius created diskettes supposedly demonstrating the software produced under the Research Agreement. ULTIMATE FINDINGS OF FACT The research activities of the partnership lacked economic substance. The partnership did not engage in any activity forPage: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 Next
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