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Included in the management agreement with Cactus Wren for
plantation II is a budget for the initial year that allocates
$43,800 to the purchase and planting of cloned plant material and
$7,689 (for 7 months) to culturing costs, such as fertilizing,
pest control, weeding, and other ongoing farm activities. Based
upon this management contract, we conclude that AI performed all
of the physical work upon plantation II.
From the formation to the abandonment of the partnerships,
Yuma Mesa and Cactus Wren had no employees. See Harris v.
Commissioner, 16 F.3d at 80 n.10. By contrast, AI employed two
managers, Don and Kelly Shooter, and hired individuals to perform
the actual farm work on the plantation. Additionally, AI had
established itself in the jojoba farming industry as a plantation
manager. By 1986, AI was running approximately 10 jojoba
plantations, several which were planted prior to those of Yuma
Mesa and Cactus Wren.
We do not accept the testimony of Peterson at trial that
Mesa "did all the things that are required to raise jojoba."
Although Mesa had been engaged as the research and development
subcontractor, petitioners presented no evidence that Mesa had
any employees or exercised any control over the activities on the
jojoba plantations. From the evidence before us, it appears that
Mesa's role was to ensure that the money paid by Yuma Mesa to HTP
and by Cactus Wren to MBP for purported research and development
went back to the shareholders of Hilltop Ventures, later Townhill
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