- 11 -
per year from 1986 through 1991, and a final payment of $3,520 in
1992 on the promissory note. It is not clear from the record
whether petitioners made all the payments provided for in the
promissory note.
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 use 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.10 The R&D agreement was executed
concurrently with the license agreement.
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
10 In the instant case, 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 because of the incomplete copy of the R&D
agreement (or other incomplete pieces of evidence) in the instant
case, the Court will 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. Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115
(1933); Bixby v. Commissioner, 58 T.C. 757, 791 (1972).
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