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were passive investments in a farming venture under which the
investors' return, if any, was to be in the form of royalties
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 that U.S. Agri's attempts to farm jojoba
commercially did not constitute R&D, 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 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 their
accountant, Mr. Meyers, should absolve them of liability for the
negligence penalty in this case. Petitioners also argue that,
taking into account their experience and the nature of the
investment in Blythe II, they exercised the due care that a
reasonable and ordinarily prudent person would have exercised
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