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IRC was a substantial underpayment due to tax-motivated
transactions under section 6621(c). Leave to file respondent's
Amendment to Answer was granted by the Court.
The facts relating to this issue were considered and found
by this Court in Estate of Cook v. Commissioner, T.C. Memo. 1993-
581, which involved another shareholder in IRC. In that case, we
sustained respondent's disallowance of such expenses as research
and experimentation expenses under section 174(a), as well as
respondent’s disallowance of similar expenses claimed by two
other S corporations that were engaged in the same activity,
Antiviral Research Corp. (ARC) and Biological Research Corp.
(BRC). Kanter was not a stockholder in the other two
corporations. The parties herein stipulated to the record of
Estate of Cook v. Commissioner, supra, except as to those
portions of the record relating only to the other two S
corporations.
During 1979, Kanter and three other individuals (including
George B. Cook, whose estate was the taxpayer in Estate of Cook
v. Commissioner, supra), invested in IRC, an S corporation that
they had organized. None of the stockholders in IRC, including
Kanter, had any formal educational background or experience in
the field of pharmaceutical compounds, which was the business IRC
was ostensibly to engage in. Shortly after IRC was organized,
IRC entered into a Research, Development, and License Agreement
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