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trade or business that the respective S corporation was
conducting in 1984 or that the respective S corporation expected
or intended to conduct at any time after 1984.
OPINION
Respondent contends that neither IRC nor RIC is entitled to
the section 174 deduction each claimed because petitioners have
failed to carry their burdens of proving the following: (1)
Either IRC or RIC paid research expenses in 1984,15 (2) any
expenses paid for by IRC or RIC in 1984 constitute research or
experimental expenditures under section 174, and (3) any such
expenditures were paid in connection with the respective S
corporation’s trade or business. Respondent contends that
To meet the “in connection with” requirement, petitioners
must establish that * * * [the S corporations] had * * *
realistic [prospects] of going into business [, and they
must do so] by demonstrating both an objective intent and
the current ability to enter the marketplace.
Respondent views petitioners’ burdens as a series of “hurdles”,
every one of which must be surmounted by a petitioner in order
for that petitioner to establish that that petitioner’s S
corporation is entitled to any part of its claimed deduction.
Petitioners contend that (1) the work that Systems performed
on behalf of IRC and RIC qualifies under section 174 and should
15At one point on brief, respondent seems to contend that
the failure of proof of 1984 expenditures applies to both IRC and
RIC; at another point respondent applies this contention only to
IRC.
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