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involved with the investment and the highly speculative nature of
the commercial viability of jojoba production. The offering
clearly stated on page 8 that the general partner "has no
previous experience in dealing in Jojoba beans and is mainly
relying on the R & D Contractor to develop technology and plant
cultivars over the term of the R & D Contract". Such statements
should have raised some degree of suspicion in the mind of a
reasonable and ordinarily prudent investor, even one lacking any
legal, tax, or agricultural background. However, petitioners did
not carefully read the offering, nor did they make any effort to
have the investment explained to them prior to investing in
Jojoba Hawaii.
The Court is mindful that the Court of Appeals for the Ninth
Circuit (Ninth Circuit) has held that experience and involvement
of the general partner and the lack of warning signs could
reasonably lead investors to believe they were entitled to
deductions in light of the undeveloped state of the law regarding
section 174. See Kantor v. Commissioner, 998 F.2d 1514 (9th Cir.
1993), affg. in part and revg. in part T.C. Memo. 1990-380. In
its holding, the Ninth Circuit explained that the Supreme Court's
decision in Snow v. Commissioner, 416 U.S. 500 (1974), left
unclear the extent to which research must be in connection with a
trade or business for purposes of qualifying for an immediate
deduction under section 174. However, here, the partnership was
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