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disallowance of research and experimental expenditures, the Court
concluded that the agreements between the partnerships and the R&D
contractor (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.9 The Court
stated that the activities of the partnerships were “another
example of efforts by promoters and investors in the early 1980s
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.
In November 1998, Mr. Clancy, acting in his capacity as tax
matters partner of San Nicholas, consented to entry of decision
against the partnership. Subsequently, in December 1998, the
Court entered decision against San Nicholas pursuant to the
Commissioner’s Motion for Entry of Decision under Rule 248(a).10
Thereafter, the Commissioner assessed a deficiency in petitioners’
income tax for 1983 in the amount of $12,355 and mailed a so-
called affected items notice of deficiency to petitioners
9 In other words, in order to decrease the limited partners’
cost of investing in the jojoba partnerships, large upfront
deductions were manufactured from expenditures that were actually
capital contributions.
10 All Rule references are to the Tax Court Rules of
Practice and Procedure.
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