Norman H. Fawson and Mary Jane B. Fawson - Page 14

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          claiming losses associated with the partnership because the                 
          limits of section 174 on the deductibility of research or                   
          experimental expenditures had not been sufficiently developed in            
          1982 is without merit.  Petitioners cite Kantor v. Commissioner,            
          998 F.2d 1514 (9th Cir. 1993), affg. in part and revg. in part              
          T.C. Memo. 1990-380, in support of their proposition.  In Kantor,           
          the Court of Appeals for the Ninth Circuit concluded that the               
          experience and involvement of the general partner and the lack of           
          warning signs could have reasonably led investors to believe they           
          were entitled to deductions in light of the undeveloped state of            
          the law regarding section 174.                                              
               As explained by the Court of Appeals, the Supreme Court’s              
          decision in Snow v. Commissioner, 416 U.S. 500 (1974), left                 
          unclear the extent to which research must be “in connection with”           
          a trade or business for purposes of qualifying for an immediate             
          deduction under section 174.  In the present case, however, not             
          only was the partnership not engaged in a trade or business, it             
          was not conducting, directly or indirectly, any research or                 
               Petitioners’ investment in the partnership is further                  
          distinguishable from the taxpayers’ investment in Kantor v.                 
          Commissioner, supra.  The general partner of Utah Jojoba I                  
          Research was not experienced in jojoba research and development,            
          and he had minimal involvement in the partnership.  Petitioners             

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