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CemCom a 5-percent annual royalty on all gross revenues from the
sales or licensing of the new technology.
Before the formation of Research II during 1982, Mr.
Townsend and Townsend & Co., Inc., were the general partners of
Research I limited partnership. Research I was organized on
December 31, 1981, and was likewise engaged in research and
development in the area of cementitious composites. Research I
also engaged CemCom to provide the actual research and
development services. Pursuant to an agreement between Research
I and CemCom, CemCom was granted the option to license the
technology it developed on behalf of Research I provided that it
paid Research I minimum royalty payments. Deductions taken by
the various limited partners of Research I were the subject of
Harris v. Commissioner, T.C. Memo. 1990-80, affd. 16 F.3d 75
(5th Cir. 1994), affd. without published opinion sub nom.
Travers v. Commissioner, 21 F.3d 424 (4th Cir. 1994), which
denied Research I a deduction pursuant to section 174(a)(1) for
amounts paid to CemCom for research and development services.
During 1982, CemCom approached Mr. Townsend with a proposal
for a new research venture. Mr. Townsend was reluctant to
organize a second partnership absent assurance by CemCom that it
would exercise its option under its agreement with Research I.
On December 29, 1982, the same day as the formation of Research
II, CemCom and Research I entered into an agreement whereby
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