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incurred by Research II in connection with its trade or
business.
In Snow v. Commissioner, 416 U.S. 500, 502 (1974), the
Supreme Court compared the "in connection" language of section
174 with the "in carrying on" language of section 1624 and
established that a business need not currently produce or sell
any product in order to obtain a deduction for research or
experimental expenditures. Rather, the Supreme Court reasoned
that the policy behind section 174, which is to aid "small or
pioneering business enterprises" as well as more established
ones, calls for a more relaxed "trade or business requirement"
than applies to section 162. Id. at 503-504.
In Green v. Commissioner, 83 T.C. 667, 671-672 (1984), a
deduction pursuant to section 174 was claimed by a partnership
that entered into a research and development agreement with a
research corporation and on the same day, through the grant of
an exclusive license, divested itself of all ownership rights to
the inventions to be produced. We held that Snow "did not
eliminate the 'trade or business' requirement of section 174
altogether" and denied the partnership the deduction. Id. at
4 Sec. 162(a) provides:
SEC. 174(a). In General.--There shall be allowed
as a deduction all the ordinary and necessary expenses
paid or incurred during the taxable year in carrying on
any trade or business, * * *.
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