- 35 -
are sufficiently substantial and regular to constitute a trade or
business" for purposes of section 174. Green v. Commissioner, 83
T.C. 667, 686-687 (1984); see also Levin v. Commissioner, 87 T.C.
698, 725 (1986), affd. 832 F.2d 403 (7th Cir. 1987).
The controlling inquiry in determining whether an
expenditure under section 174 was made "in connection with" the
partnership's trade or business is whether the taxpayer is
"'actively involved in the * * * [research project] as a trade or
business.'" LDL Research & Dev. II, Ltd. v. Commissioner, supra
at 1342 (quoting Nickeson v. Commissioner, 962 F.2d at 978). On
the record of this case, Utah I has not satisfied the "active
involvement" test set forth above.
To be actively involved in the research project as a trade
or business, Utah I must be more than a passive investor in the
activities of U.S. Agri. Id. To establish that expenses under
section 174 were in connection with their trade or business,
"taxpayers must show * * * that their activities were substantial
and regular enough to establish that they were actively involved
in the trade or business." Nickeson v. Commissioner, supra at
978. Even if this Court had found that Utah I had a fixed
liability under the R&D agreement, the activities of Kellen and
U.S. Agri on behalf of Utah I did not establish that Utah I was
actively involved in a trade or business involving jojoba
technology or jojoba production. See, e.g., Zink v. United
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