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whale oil requirements of the United States. By 1982, the
planted jojoba acreage had increased more than 10 times to an
estimated 25,000 acres, and by 1986 an estimated 40,000 acres of
jojoba had been planted in Arizona, California, and Texas.
Utah I entered into an agreement with U.S. Agri Research and
Development Corp. (U.S. Agri) that purported to provide for U.S.
Agri to furnish agricultural research and development services
with respect to the growing of jojoba on land in Desert Center,
California (the plantation). Utah I engaged in no activity other
than to enter into the agreements described herein and transmit
payments to U.S. Agri.
1. Utah Jojoba I Research
When the petition was filed, the principal place of business
of Utah I was Cora, Wyoming.
On December 27, 1982, Utah I was organized as a limited
partnership with a described purpose of conducting research and
development involving the jojoba plant. Kellen served as both
the general partner and TMP of Utah I. Under the accrual method
of accounting and pursuant to a claimed election under section
174, Utah I claimed losses of $1,304,819 for 1982, largely from
the deduction of $1,298,627 as research and experimental
expenses for the taxable year ending on December 31, 1982, and
also claimed losses of $50,482 for the taxable year ending
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