Richard E. & Elizabeth S. Nilsen - Page 10




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          portion of which, but for tax-advantaged investments, would be              
          subject to a Federal income tax rate of 50 percent.                         
               Petitioners' investment was for four limited partnership               
          units, which required an initial downpayment of $10,000 and                 
          execution of a promissory note for $23,920.  Petitioners paid               
          $2,600 each year from 1983 through 1985 and $2,100 per year from            
          1986 through 1991 on the promissory note.  In 1992, petitioners             
          made a final payment of $3,520.                                             
               The offering identified William Kellen (Mr. Kellen) as the             
          general partner and U.S. Agri as the contractor for the R & D               
          program under an R & D agreement.  Additionally, a license                  
          agreement between Blythe II and U.S. Agri granted U.S. Agri the             
          exclusive right to utilize technology developed for Blythe II for           
          40 years in exchange for a royalty of 85 percent of all products            
          produced.  The offering included copies of both the R & D                   
          agreement and the license agreement.8  The R & D agreement was              
          executed concurrently with the license agreement.                           


               8    In the instant cases, the Blythe II offering is                   
          included in evidence as a stipulated exhibit; however, the                  
          stipulated exhibit contains an incomplete copy of the R & D                 
          agreement that was attached to the original offering.  To the               
          extent that relevant facts are omitted due to the incomplete copy           
          of the R & D agreement (or other incomplete pieces of evidence)             
          in the instant cases, the Court must rely on findings of fact in            
          Utah Jojoba I Research v. Commissioner, T.C. Memo. 1998-6, to               
          which the partners of Blythe II agreed to be bound.  It is                  
          petitioners' burden to establish the context in which their                 
          deductions were taken.  See Rule 142(a); Welch v. Helvering, 290            
          U.S. 111, 115; Bixby v. Commissioner, 58 T.C. 757, 791 (1972).              





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