- 28 -
1987); Green v. Commissioner, supra; Spellman v. Commissioner,
T.C. Memo. 1986-403, affd. 845 F.2d 148 (7th Cir. 1988). The
controlling inquiry, where a partnership is claiming deductions
under section 174, is whether there is a realistic prospect that
the technology to be developed will be exploited in a trade or
business of the entity in question. See Diamond v. Commissioner,
supra. Mere legal entitlement to enter into a trade or business
does not satisfy this test. Instead, "The legal entitlement must
be backed by a probability of the firm's going into business."
Levin v. Commissioner, 832 F.2d at 407.
In making this determination, we consider such facts and
circumstances as the intentions of the parties to the research
and development contract, the amount of capitalization retained
by the partnership during the research and development contract
period, the exercise of control by the partnership over the
person or organization conducting the research and development,
the existence of an option to acquire the technology developed by
the organization conducting the research and development and the
likelihood of its exercise, the business activities of the
partnership during the years in question, and the business
experience of the partners. See Glassley v. Commissioner, T.C.
Memo. 1996-206; Mach-Tech, Ltd. Partnership v. Commissioner, T.C.
Memo. 1994-225, affd. without published opinion 59 F.3d 1241 (5th
Cir. 1995); Stankevich v. Commissioner, T.C. Memo. 1992-458;
Stauber v. Commissioner, T.C. Memo. 1992-128.
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