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respect to any technology that was to be developed by U.S. Agri.
Id.
Notwithstanding the foregoing, petitioner contends that his
investment in San Nicholas was motivated solely by the potential
to earn a profit. Petitioner also contends that, taking into
account his experiences as a farmer and engineer and the nature
of his investment, he exercised the due care that a reasonable
and ordinarily prudent person would have exercised under like
circumstances. Finally, petitioner contends that reliance on Mr.
Pace, Mr. Jacobs, and a professor at the University of California
should absolve him of liability for negligence in this case. For
the following reasons, we disagree with petitioner’s contentions.
First, the principal flaw in the structure of San Nicholas
was evident from an examination of the R&D contract and the
license agreement. Both of these documents were a part of the
offering memorandum. A reading of the R&D contract and the
license agreement demonstrates that the license agreement
canceled, or rendered ineffective, the R&D contract because of
the concurrent execution of the two documents. Accordingly, San
Nicholas was never engaged in, either directly or indirectly, any
research or experimentation. Rather, San Nicholas was merely a
passive investor seeking royalty returns pursuant to the license
agreement. See Lopez v. Commissioner, T.C. Memo. 2001-278;
Christensen v. Commissioner, T.C. Memo. 2001-185; Serfustini v.
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