- 13 -
$56,250. On its Federal income tax return for 1983, Research II
claimed a $231,432.45 loss consisting of $1,628.83 of dividend
income and miscellaneous expenses of $233,061.28. On its
Federal income tax return for 1984, Research II claimed a
$174,571.15 loss consisting of $257.18 of dividend income and
miscellaneous expenses of $174,828.33. By notice of final
partnership administrative adjustment dated July 8, 1988,
respondent denied Research II's deductions for the years in
issue but allowed Research II a deduction of $25,931 for
amortization of patents in 1984. Respondent has stipulated that
Research II was entitled pursuant to section 709(b) to deduct
amortization of organizational fees of $1,250 for 1982.
OPINION
The issue we must decide is whether Research II is entitled
to a deduction, pursuant to section 174(a)(1), for the
$2,750,000 debt it incurred to CemCom during 1982. Section
174(a)(1) provides:
SEC. 174(a). Treatment as Expenses.–-
(1) In general.--A taxpayer may treat research or
experimental expenditures which are paid or incurred by him
during the taxable year in connection with his trade or
business as expenses which are not chargeable to capital
account. The expenditures so treated shall be allowed as a
deduction.
The parties agree that the $2,750,000 debt related to
research or experimentation falls within the scope of section
174. Respondent contends, however, that the debt was not
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 Next
Last modified: May 25, 2011