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R&D companies, Mr. Slavitt’s role as a promoter of I-Tech, and
Mr. Yaakov’s ownership interest in WTI, RSI,38 and three R&D
companies.39 The majority of Mr. Slavitt’s and Mr. Yaakov’s
efforts was spent trying to assure I-Tech its stream of “royalty”
income. Such an interest in obtaining royalties is inherently an
“investor-like interest”, Green v. Commissioner, 83 T.C. at 688-
689, and Mr. Slavitt’s and Mr. Yaakov’s efforts amounted to no
more than the management and protection of an investment. The
management of investments is not a trade or business irrespective
of the amount of time required to perform the managerial
functions. See id. at 688.
Petitioner asserts that Mr. Slavitt and Mr. Yaakov were in
charge, on a “hands on” basis, of the development of the
technology.40 The fact that a taxpayer may have taken an active
38Mr. Yaakov had a controlling interest in RSI, WTI, and
WorldTech U.S.
39Mr. Yaakov had a 15-percent equity interest in Cycon plus
an option to acquire an additional 15 percent. RSI, which was
controlled by Mr. Yaakov, owned 30 percent of Cycon, had an
option to acquire an additional 10 percent, and owned 29 percent
of AiTech. Mr. Yaakov also had an indirect interest in Oshap
affiliate, Robitcad.
40On brief, petitioner relies on Scoggins v. Commissioner,
46 F.3d 950 (9th Cir. 1995), revg. T.C. Memo. 1991-263. Scoggins
is distinguishable from the instant case. The partnership in
Scoggins had only two partners. The two partners invented a new
type of “pancake-heated” epitaxial reactor and contributed all
the technology associated with the design and production of that
product to the partnership. The partners then contracted with a
corporation that they had formed and controlled to do the
research necessary to develop the technology into a marketable
(continued...)
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