Utah Jojoba I Research, William G. Kellen, Tax Matters Partner - Page 30

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               management studies, consumer surveys, advertising or                    
               promotions.  * * *                                                      
               Respondent claims that the amounts paid to U.S. Agri by Utah            
          I in 1982 do not fall within the purview of the quoted regulation            
          and are not deductible under section 174.  Respondent contends               
          that the amounts expended by Utah I were payments in connection              
          with U.S. Agri's farming enterprise that had the commercial                  
          production of jojoba as the sole or primary objective.                       
          Furthermore, most of the amounts paid by Utah I to U.S. Agri were            
          allocable to land development or improvement.  Respondent argues             
          that the activities of U.S. Agri were, at most, field testing and            
          more likely were simply farming activities directed toward                   
          maximizing the potential production of the jojoba plantations.               
          Moreover, respondent contends that no research whatsoever was                
          performed by U.S. Agri on behalf of Utah I.  Petitioner contends             
          that U.S. Agri conducted valid research or experimentation                   
          regarding cultivation of the jojoba plant on behalf of Utah I                
          and, consequently, under section 174(a)(1), Utah I is entitled to            
          deduct the contract fees paid to U.S. Agri for such research or              
          experimentation.  The record in this case supports our conclusion            
          that respondent's determinations are correct, and that                       
          petitioner's arguments to the contrary are without merit.                    
               Attempts to farm jojoba commercially do not represent                   
          research and development in the experimental or laboratory sense.            
          Cactus Wren Jojoba, Ltd. v. Commissioner, supra; Glassley v.                 




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