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evidence supports the conclusion that petitioners acted
reasonably under the circumstances.
In contrast to many of the cases decided by this Court
involving tax shelters in which the impropriety of partnership
deductions could be discerned only by an investigation of the
partnership’s actual operations, the problem with Utah Jojoba I
Research was apparent from the documents included in the offering
prepared by CFS. Both the R&D agreement and the licensing
agreement were included in the offering. An experienced attorney
capable of reading and understanding these documents should have
understood the legal ramification of the licensing agreement
canceling the R&D agreement. With the concurrent execution of
the two agreements, the partnership was not engaging, even
indirectly, in any research or experimentation. Instead, the
partnership was merely a passive investor seeking royalty returns
pursuant to the licensing agreement.
Rather than seeking professional legal and tax advice,4
petitioners relied solely on their reading of the offering, their
discussions with Mr. Jones, who was selling the investment, their
discussion with someone from CFS, which was promoting the
investment, and petitioner’s reading about jojoba. The record
4 Petitioner testified that he discussed the investment
with his accountant “at least after the investment was made”. He
did not indicate, however, what information he shared with the
accountant or the exact nature of any advice he received.
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