- 37 -
Equities, Inc., as lease payments. HTP, MBP, Hilltop Ventures,
and Townhill Equities, Inc., were owned and controlled by
identical parties--Almand, Peterson, Meinke, and Damer.
Additional amounts were paid over to AI in accordance with the
management agreements and budgets summarized above.
The passive nature and limited activity of Yuma Mesa and
Cactus Wren, as well as their lack of control over all aspects of
the investment, plainly demonstrate that the general partners of
Yuma Mesa and Cactus Wren never intended that these partnerships
would enter into a trade or business.13 Neither Yuma Mesa nor
Cactus Wren was adequately capitalized by the general partners
for operation as a business in the long-term. Both Yuma Mesa and
Cactus Wren had run out of capital by 1987 and were not able to
purchase the wind machines. None of the general partners had the
expertise necessary to operate a jojoba plantation. The
contractual arrangements between Yuma Mesa and HTP and between
Cactus Wren and MBP, in addition to Mesa, made the prospects
unrealistic that the partnerships would ever be capable of
entering into a trade or business with respect to any technology
that might be developed. The actions of the general partners in
13 As the Court of Appeals for the Fifth Circuit noted in
Harris v. Commissioner, 16 F.3d 75 (5th Cir. 1994), affg. T.C.
Memo. 1990-80, supplemented by 99 T.C. 121 (1992): [T]hose cases
in which a sec. 174 deduction was upheld may be distinguished by
one dispositive factor: In each of the cases allowing the
deduction, the entity that incurred the research expenses
actually managed and actually controlled the use or marketing of
the research. Id. at 79.
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