- 23 -
supra; Stankevich v. Commissioner, supra.
A. Research and Experimental Expenditures for 1982 and 1983
Section 174 allows a taxpayer12 to elect to treat research
and experimental expenditures paid or incurred during the taxable
year "in connection with" the taxpayer's trade or business as
expenses which are not chargeable to capital account. The
expenditures so treated are allowed as a deduction. Treasury
regulations provide that the expenditures may be paid or incurred
for research or experimentation carried on by the taxpayer or by
another on the taxpayer's behalf. Sec. 1.174-2(a), Income Tax
Regs.
Petitioners contend that the expenditures here in issue
qualify under the statutory standard. Respondent argues, first,
that the expenditures in issue were not "research and
experimental expenditures" and, secondly, that Yuma Mesa and
Cactus Wren had no realistic prospect of engaging in a trade or
business related to jojoba farming and could at most act as
passive investors because of the existence of exclusive licenses.
Accordingly, respondent concludes that petitioners did not pay or
incur "research or experimental expenditures" in connection with
their "trade or business." We agree with respondent on both
counts.
The term "research or experimental expenditures" as used in
12 The "taxpayer" for this purpose is the partnership. Cf.
Campbell v. United States, 813 F.2d 694, 695-696 (5th Cir. 1987).
Page: Previous 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 NextLast modified: May 25, 2011