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or experimentation and that the partnerships lacked a realistic
prospect of entering into a trade or business. In upholding the
Commissioner’s 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.14 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).15
Thereafter, the Commissioner assessed a deficiency in
14 In other words, in order to decrease the limited
partners’ cost of investing in the jojoba partnerships, large up-
front deductions were manufactured from expenditures that were
actually capital contributions.
15 All Rule references are to the Tax Court Rules of
Practice and Procedure.
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