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Jojoba to petitioner’s attention, he nevertheless assured
petitioner there would be no problem with the deduction. Mr.
Mihara relied upon representations made by Jojoba representatives
that Jojoba’s activities qualified as research and development
and that investors would “be able to take all these deductions
and get all these tax benefits.” Solely on the basis of those
representations, Mr. Mihara concluded that Jojoba was a
legitimate research and development activity. Neither he nor
petitioner did any independent research or analysis or consulted
with any experts regarding the Jojoba investment.4
Petitioner did not inquire regarding Mr. Mihara’s
involvement with Jojoba or his qualifications to advise
petitioner competently regarding the proposed investment. In
fact, Mr. Mihara was the accountant for, and an investor in,
Jojoba.
Shortly after petitioner discussed Jojoba with Mr. Mihara,
petitioner made the minimum investment in Jojoba. Petitioner
paid $5,000 by check and signed a promissory note for $9,250 with
10 percent interest per year in exchange for five limited
partnership units. Petitioner also executed a limited guaranty
4Mr. Mihara had no personal knowledge regarding the jojoba
plantation, but he did receive occasional progress letters from
Agri-Research regarding the activities allegedly being conducted
on the jojoba plantation. Petitioner may have seen some of these
progress letters but, at the time of trial, he did not recall
whether he received any specific letter.
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