Michael E. and Johanna S. Davis - Page 6




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          employment, $31,417 from petitioner wife's employment, interest             
          income of $952, a State income tax refund of $1,490, a loss of              
          $3,468 from the commercial fishing activity, "other gains" of               
          $237, a net farm loss of $1,890, other income of $4,685, and a              
          net loss from Jojoba Hawaii of $1,205.  Thus, petitioners                   
          reported total income of $89,277 and a tax liability of $8,704.             
               Jojoba Hawaii was audited by the Internal Revenue Service,             
          and a Notice of Final Partnership Administrative Adjustment was             
          issued to the partnership.  The partnership initiated a TEFRA               
          proceeding in this Court.  A decision was thereafter entered in             
          Utah Jojoba I Research v. Commissioner, T.C. Memo. 1998-6, which            
          involved a similar jojoba investment program.4  In the decided              
          case, this Court held that the partnerships5 did not directly or            
          indirectly engage in research or experimentation and that the               
          partnerships lacked a realistic prospect of entering into a trade           
          or business.  In upholding the Commissioner's disallowance of               
          research and experimental expenditures, the Court found that the            
          agreements between the partnerships and the proposed research and           
          development contractor, U.S. Agri Research & Development Corp.              
          (U.S. Agri), had been designed and entered into solely to provide           


               4    The tax matters partner of Jojoba Hawaii signed a                 
          stipulation to be bound by the outcome of Utah Jojoba I Research            
          v. Commissioner, T.C. Memo. 1998-6.                                         
               5    Eighteen docketed cases were bound by stipulation by              
          the outcome of Utah Jojoba I Research v. Commissioner, supra.               





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