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nothing more than a farming activity. See Fawson v.
Commissioner, supra. Petitioner should have realized that in the
absence of any research and development, there could be no
deduction for research and experimental expenditures under
section 174.
Fourth, petitioner contends that in deciding to invest in
San Nicholas, he reasonably relied on advice from Mr. Pace, Mr.
Jacobs, and a professor at the University of California. For
reasons that we shall discuss, we disagree that any such reliance
was reasonable.
Petitioner contends that he reasonably relied on advice from
Mr. Pace. At the time of trial, Mr. Pace was deceased;
accordingly, we do not know first hand what knowledge he may have
had or what advice he may have given.20 The record does establish
that Mr. Pace was the president of U.S. Agri and a member of its
board of directors. Petitioner, who for a period of time was
also a member of U.S. Agri’s board, obviously knew that Mr. Pace
was an interested party and that Mr. Pace had a conflict of
interest. Thus, whatever advice petitioner may have received
from Mr. Pace fails as a defense to negligence because of Mr.
Pace’s lack of competence to give such advice and the clear
presence of a conflict of interest. See Rybak v. Commissioner,
20 In Utah Jojoba I Research v. Commissioner, T.C. Memo.
1998-6, the Court found that before 1983, Mr. Pace had only
limited knowledge of, and minimal background in, jojoba.
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