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research and development agreement contained therein met the
requirements of section 174. A copy of this document was
distributed to Mr. Robnett. Potential investors were required to
provide information concerning any previous experience in tax
shelter investments, and the subscription agreement required
investors to initial a statement that the investor had been
advised to consult with an attorney concerning the tax
consequences of the investment.
Mr. Robnett executed the subscription agreement and
purchased six interests in Yuma Mesa in late 1982. In connection
with this purchase, he executed a promissory note and made a cash
payment. Mr. Robnett was issued a Schedule K-1 by the
partnership which allocated a $69,521 ordinary loss for taxable
year 1982 to Mr. Robnett.
Ms. Robnett received no information concerning the
partnership for several years after the investment. In the late
1980's, she learned that respondent had challenged the
partnership’s tax treatment of the purported research and
development costs. Petitioners never paid the promissory note
signed in connection with the investment in Yuma Mesa.
On petitioners’ joint Federal income tax return for taxable
year 1982, they reported $85,378.90 in compensation from Mr.
Robnett’s corporation. From this they subtracted a $66,465 loss
as reported on Schedule E, Supplemental Income and Loss. On the
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