Cactus Wren Jojoba, Ltd., Cecil R. Almand, Tax Matters Partner - Page 23

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            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).                            



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