Investment Engineers, LTD., Robert S. McGlamery, A Partner Other than the Tax Matters Partner - Page 13

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                  that the research is successful.  See Zink v. United                                    
                  States, 929 F.2d 1015, 1023 (5th Cir. 1991); Spellman                                   
                  v. Commissioner, 845 F.2d 148, 149 (7th Cir. 1988).  We                                 
                  hold that a taxpayer demonstrates such a prospect by                                    
                  manifesting both the objective intent to enter such a                                   
                  business and the capability of doing so.  See Spellman,                                 
                  845 F.2d at 150-51; Levin v. Commissioner, 832 F.2d                                     
                  403, 406-07 (7th Cir. 1987); see also United Fibertech,                                 
                  Ltd. v. Commissioner, 976 F.2d 445, 446 (8th Cir. 1992)                                 
                  (per curiam); Diamond v. Commissioner, 930 F.2d 372,                                    
                  375 (4th Cir. 1991).                                                                    
            In Kantor v. Commissioner, supra, the Court of Appeals for the                                
            Ninth Circuit affirmed our conclusion that the partnership                                    
            involved there had no realistic prospect of engaging in its own                               
            trade or business in connection with the development of software                              
            at the time it incurred the research expenditures in dispute.                                 
            The Court of Appeals agreed that the evidence in that case                                    
            established that the partnership “had neither the objective                                   
            intent nor the capability of entering such a business.”  Id. at                               
            1519.  We reach the same conclusion here.                                                     
                  In Commissioner v. Groetzinger, 480 U.S. 23, 35 (1987), the                             
            Supreme Court reviewed prior cases, including Snow v.                                         
            Commissioner, supra, and stated that “to be engaged in a trade or                             
            business, the taxpayer must be involved in the activity with                                  
            continuity and regularity and * * * the taxpayer’s primary                                    
            purpose for engaging in the activity must be for income or                                    
            profit.  A sporadic activity, a hobby, or an amusement diversion                              
            does not qualify.”  It is established that tax deductions cannot                              
            be based on “the expedient of drawing up papers to characterize                               
            the transactions in question as something contrary to the                                     

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