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tax; and (3) whether petitioners are liable for an accuracy-
related penalty under section 6662(a).
Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the year in issue.
FINDINGS OF FACT
Some of the facts have been stipulated, and the stipulated
facts are incorporated in our findings by this reference.
Petitioners resided in Davis, California, at the time they
filed their petition in this case.
Ralph W. Emerson (petitioner) received an undergraduate
degree from the University of California at Los Angeles, studying
neurobiology, mathematics, and chemistry. He then attended
graduate school at Harvard University, studying informational
systems and chemistry. Prior to 1998, petitioner was a research
biologist engaged in the business of developing pesticides,
fungicides, and other agricultural products. Petitioner has
attained about 14 patents from the U.S. Patent Office dealing
with chemistries and biologies of biochemical pesticides and
about twice that amount in international patents.
Petitioner’s Relationship with ProGuard
On June 26, 1994, petitioner entered into a contract for
services (the contract) with ProGuard, Inc. (ProGuard), to
perform scientific research as an independent contractor.
Petitioner and ProGuard shared an interest in developing “safer
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