- 3 -
"Manufacturing Recyclable containers". They also indicated that
petitioner materially participated in the operation of the
business. Petitioners reported no income on the Schedule C, nor
did they deduct any expenses other than the $50,000 "Product
Development" expense.
The Commissioner's notice of deficiency disallowed two
different research and development deductions, each for $50,000.
The first, taken in 1992 in connection with horse-breeding
activities, was conceded by respondent. The second, taken in
1992 in connection with the investment in RCC, is still in
contention. The remaining items contained in the notice of
deficiency have been conceded by the parties or are statutory
adjustments dependent upon the outcome of the RCC issue.
Petitioners contend they are entitled to deduct the $50,000
they paid to RCC in 1992 under section 174(a).2 Section 174(a)
allows a taxpayer to "treat research or experimental expenditures
which are paid or incurred * * * in connection with his trade or
business as expenses which are not chargeable to capital account.
The expenditures so treated shall be allowed as a deduction."
Section 1.174-2(a)(2), Income Tax Regs., indicates that section
174 applies "not only to costs paid or incurred by the taxpayer
2 Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the years in issue, and
all Rule references are to the Tax Court Rules of Practice and
Procedure.
Page: Previous 1 2 3 4 5 6 7 8 9 10 Next
Last modified: May 25, 2011