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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 research and
experimental expenditures, the Court found that the agreements
between the partnerships and the proposed research and
development contractor, U.S. Agri Research & Development Corp.
(U.S. Agri), had been designed and entered into solely to provide
a mechanism to disguise the capital contributions of limited
partners as currently deductible expenditures. The Court stated
that the activities of the partnerships were "another example of
efforts by promoters and investors in the early 1980's to reduce
the cost of commencing and engaging in the farming of jojoba by
claiming, inaccurately, that capital expenditures in jojoba
plantations might be treated as research or experimental
expenditures for purposes of claiming deductions under section
174." Id.
As a result of Blythe II's TEFRA proceeding, petitioners
were assessed tax deficiencies of $8,858 for 1982 and $201 for
1983, plus interest. Subsequently, respondent issued notices of
deficiency to petitioners for 1982 and 1983 for affected items
determining that petitioners are liable for the additions to tax
for negligence under section 6653(a)(1) and (2) and a substantial
understatement of tax under section 6661 for 1982. These
additions to tax are the subject of the instant cases.
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