- 30 -
at 689. "Following this assignment, the partnership's activities
were purely ministerial; the taxpayers were no more than mere
investors." Diamond v. Commissioner, supra at 438.
In Levin v. Commissioner, 87 T.C. at 727-728, we held that
the grant of an exclusive license foreclosed the possibility that
the licensor could be engaged in a trade or business in
connection with the licensed product, as the licensor was
deprived of control over the product. "An entity with no control
over activities in which it invests is more properly classified
as an investor and cannot be engaged in a trade or business in
connection with those activities." Diamond v. Commissioner,
supra at 443.
In Stankevich v. Commissioner, supra, the limited
partnership entered into an exclusive license agreement whereby
the limited partnership granted the prime contractor licenses to
any technology resulting from the prime contractor's research and
development efforts. As a royalty, the limited partnerships
received 50-percent profit interests in the jojoba crops grown on
the acreage allocated to the limited partnerships. We held that
the prime contractor conducted no research and experimentation
but instead sought to farm commercially. We further held that
the limited partnerships were not entitled to a deduction for
research and experimentation expenditures under section 174(a)
because the limited partnerships were not engaged directly or
indirectly in a trade or business because of the granting of the
Page: Previous 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 NextLast modified: May 25, 2011