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to be disbursed in payment of the licensing agreement to CemCom,
and the limited partners of Research II were under no obligation
to contribute additional funds for that purpose. These facts
indicate that Research II never intended to enter a trade or
business in connection with the new technology.
Petitioner argues that the instant case is distinguishable
from Harris v. Commissioner, supra, because the high minimum
royalties required by the technology transfer agreement in
addition to the royalties which CemCom owed under the Research I
agreement made it virtually certain that CemCom would never
exercise its option under the Research II agreement to license
the new technology. However, as we said in Harris: "the amount
of the royalties does not supply the required prospect of a
'trade or business' to be carried out by the Partnership."
Petitioner further argues that the fact that Research I,
Research II, Mr. Townsend, and another partner in both Research
I and Research II ultimately acquired control of CemCom is
evidence of the Research II's intent to engage in a trade or
business. To the contrary, such evidence convinces us that,
even when CemCom was unable to license the new technology,
Research II did not take advantage of the opportunity to enter
into a trade or business with the new technology. Instead, the
minimum royalties were reduced, and CemCom, with its new owners,
remained the vehicle through which the actual trade or business
involving the new technology was operated.
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Last modified: May 25, 2011