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mechanism of a large up-front deduction for expenditures that in
actuality were capital contributions. Cactus Wren Jojoba, Ltd.
v. Commissioner, supra; Glassley v. Commissioner, supra;
Stankevich v. Commissioner, supra. Additionally, Utah I was
involved in neither the business of jojoba technology research
nor jojoba production. At most, Utah I was a passive investor in
a farming venture from which it might have received a share of
any profits in the future. Kellen, the general partner of Utah
I, admitted that he did not even read the private placement
memorandum for Utah I, which included the R&D agreement and the
license agreement, until preparing this case for trial.
A. Research and Experimental Expenditures for 1982
Section 174 allows a taxpayer6 to elect to treat research
and experimental expenditures paid or incurred during the taxable
year "in connection with" the taxpayer's trade or business as
expenses that are not chargeable to capital account. The
expenditures so treated are allowed as a deduction. Treasury
regulations provide that the expenditures may be paid or incurred
for research or experimentation carried on by the taxpayer or by
another on the taxpayer's behalf. Sec. 1.174-2(a), Income Tax
Regs.
6 The "taxpayer" for this purpose is the partnership. Cf.
Campbell v. United States, 813 F.2d 694, 695-696 (5th Cir. 1987).
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