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role in directing the research does not, by itself, place a
taxpayer in a trade or business. See id. at 690. An entity that
has no contractual control over the activities in which it
invests is merely an investor and cannot be engaged in a trade or
business in connection with those activities. See Diamond v.
Commissioner, 930 F.2d at 376.
In the instant case, the R&D agreements did not provide I-
Tech with the right to control the research and development
activities of any of the R&D companies. Indeed, the original R&D
agreements41 between ATA and Efrat, which the subsequent R&D
40(...continued)
product. See id. at 953. The research “was done under the
guidance of * * * [the partners] with the assistance of three
corporate employees.” Id. Based on the particular facts in that
case, the court concluded “that the partnership had a realistic
prospect of subsequently entering into its own business in
connection with the fruits of the research if the research was
successful.” Id. at 956.
In the instant case, I-Tech entered into agreements with
five preexisting R&D companies organized and controlled by other
parties. No one at I-Tech invented or developed any of the
discovered technology, and the employees of the Israeli R&D
companies, not Mr. Slavitt or Mr. Yaakov, were primarily
responsible for performing the research.
41As noted in the findings of fact, petitioner provided only
one original contract between ATA and an R&D company. The R&D
agreements executed subsequently between I-Tech and the R&D
companies are all similar and are based on the original
agreements between ATA and the four original R&D companies
(Efrat, AiTech, Hal Robotics, and Cycon). Mr. Slavitt testified,
and the agreements with I-Tech confirm, that the R&D agreements
were based on the original agreements with ATA. Therefore, we
conclude that the right to control the research and development
(continued...)
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