- 40 -
could not have engaged in a trade or business as it had disposed
of all of the incidents of ownership by assigning all its rights
in the technology to a third party. Id. at 689. "Following this
assignment, the partnership's activities were purely ministerial;
the taxpayers were no more than mere investors." Diamond v.
Commissioner, supra at 438.
In Levin v. Commissioner, 87 T.C. at 727-728, we held that
the grant of an exclusive license foreclosed the possibility that
the licensor could be engaged in a trade or business in
connection with the licensed product, as the licensor was
deprived of control over the product. "An entity with no control
over activities in which it invests is more properly classified
as an investor and cannot be engaged in a trade or business in
connection with those activities." Diamond v. Commissioner,
supra at 443.
In Diamond v. Commissioner, supra, the partnership granted
an option to a research contractor to acquire an exclusive
license to the new technology at some future time. Because the
option could have been exercised for a relatively nominal amount,
we concluded that there was no realistic prospect that the
partnership would ever enter any trade or business relating to
the technology. Id. at 440-441.
In Cactus Wren Jojoba, Ltd. v. Commissioner, supra, and
Stankevich v. Commissioner, supra, the limited partnership in
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