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(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 $9,006 for 1982 and $503 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 case.
The first issue is whether petitioners are liable for the
additions to tax for negligence, under section 6653(a)(1) and
(2), for both years at issue. Section 6653(a)(1) imposes an
addition to tax in an amount equal to 5 percent of an
underpayment of tax if any part of the underpayment is due to
negligence or intentional disregard of rules or regulations.
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