- 6 -
losses from two partnerships and two rental properties totaling
$57,513, of which $1,006 represented the loss from Blythe II.6
Thus, petitioners reported an adjusted gross income of
$193,261.06 and a total tax liability of $53,187.27.
Blythe II was audited by the Internal Revenue Service, and a
notice of final partnership administrative adjustment was issued
to the partnership. The partnership initiated a TEFRA proceeding
in this Court, and a decision was entered in Utah Jojoba I
Research v. Commissioner, T.C. Memo. 1998-6, which involved a
similar jojoba investment program.7 In the decided case, this
Court held that the partnerships8 did not directly or indirectly
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.
6 The remainder of the loss consisted of $50,582 from
Arrowhead Village partnership, $49.57 from the rental of a
condominium, and $5,875.60 from the rental of a Mercedes
automobile.
7 The tax matters partner of Blythe II signed a
stipulation to be bound by the outcome of Utah Jojoba I Research
v. Commissioner, T.C. Memo. 1998-6.
8 Eighteen docketed cases were bound by stipulation by
the outcome of Utah Jojoba I Research v. Commissioner, supra.
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