- 12 - the primary purpose of or with an actual and honest objective of making a profit. The partnership had neither the objective intent nor the capability of entering into a computer software business. OPINION Petitioner has the burden of proving that respondent’s determination is erroneous. Rule 142(a); INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992); Rockwell v. Commissioner, 512 F.2d 882 (9th Cir. 1975), affg. T.C. Memo. 1972-133. Petitioner contends that, even though the partnership was never in a trade or business, it is entitled to deduct research expenses under section 174. Section 174(a)(1) provides: (1) In general.--A taxpayer may treat research or experimental expenditures which are paid or incurred by him during the taxable year in connection with his trade or business as expenses which are not chargeable to capital account. The expenditures so treated shall be allowed as a deduction. The language “in connection with * * * [the taxpayer’s] trade or business” has been interpreted to allow deduction of research expenses in a business that is only prospective. Snow v. Commissioner, 416 U.S. 500 (1974). In Kantor v. Commissioner, 998 F.2d 1514, 1518-1519 (9th Cir. 1993), affg. T.C. Memo. 1990- 380, the Court of Appeals for the Ninth Circuit stated: Although a taxpayer need not be conducting a trade or business at the time it incurs the research expenditure, the taxpayer must demonstrate a “realistic prospect” of subsequently entering its own business in connection with the fruits of the research, assumingPage: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 Next
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