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indicated, section references are to the Internal Revenue Code in
effect for the year in issue.
The issues for decision are: (1) Whether petitioners are
liable for additions to tax for negligence under section 6653(a),
and (2) whether petitioners are liable for the addition to tax
for a substantial understatement under section 6661. The issues
in this case concern the participation of petitioner husband (Mr.
Harvey or petitioner) as a limited partner in Yuma Mesa Jojoba,
Ltd. (“Yuma Mesa” or “the partnership”).1
Some of the facts have been stipulated and are so found.
The stipulations of fact and the attached exhibits are
incorporated herein by this reference. Petitioners resided in
Norman, Oklahoma, on the date the petition was filed in this
case.
1The underlying deficiency in this case is based upon a
computational adjustment made by respondent in accordance with
partnership level adjustments. Those adjustments were upheld by
this Court in Cactus Wren Jojoba, Ltd. v. Commissioner, T.C.
Memo. 1997-504. In that case, this Court reviewed respondent’s
determinations with respect to Yuma Mesa and a related
partnership. We held that the partnerships 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 respondent’s disallowance of
$1,298,031 in research and experimental expenditures claimed by
Yuma Mesa, we described the research and development agreement
entered into by the partnership as “mere window dressing,
designed and entered into solely to decrease the cost of
participation in the jojoba farming venture for the limited
partners through the mechanism of a large upfront deduction for
expenditures that in actuality were capital contributions.” Id.
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