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According to its terms, the R & D agreement expired upon the
partnership's execution of the license agreement. Since the two
were executed concurrently, amounts paid to U.S. Agri by the
partnership were not paid pursuant to a valid R & D agreement but
were passive investments in a farming venture under which the
investors' return, if any, was to be in the form of a royalty
pursuant to the licensing agreement. Thus, as this Court held in
Utah Jojoba I Research v. Commissioner, supra, the partnership
was never engaged in research or experimentation either directly
or indirectly. Moreover, this Court found in Utah Jojoba I
Research v. Commissioner, supra, that U.S. Agri's attempts to
farm jojoba commercially did not constitute research and
development, thereby concluding that the R & D agreement was
designed and entered into solely to decrease the cost of
participation in the jojoba farming venture for the limited
partners through large up-front deductions for expenditures that
were actually capital contributions. The Court concluded further
that the partnership was not involved in a trade or business and
had no realistic prospect of entering into a trade or business
with respect to any technology that was to be developed by U.S.
Agri.
Petitioners here contend that their investment in Blythe II
was motivated solely by the potential to earn a profit.
Petitioners contend further that their reliance on the advice of
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