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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
development.
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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