- 14 -
no income on these Schedules C. Petitioners deducted the
following research and development expenses on these schedules:11
Description 1995 1996
Salaries $28,584 $1,076,850
Contract labor 20,947 46,451
Building rent 5,644 54,293
Commissions 4,250 3,306
Telephone 428 33,001
Meals/entertainment 106 329
Equipment rental 6,052 68,379
Repairs/maintenance 1,036 26,086
Freight 497 265
Janitorial -0- 426
Recruiting fees -0- 4,187
Travel -0- 3,016
Services -0- 13,495
Dues & subscriptions -0- 1,500
Electricity -0- 14,218
License fees -0- 12,050
Small equipment -0- 573
Office supplies -0- 1,761
Postage/misc. -0- 491
Interest -0- 160,967
TOTAL 267,543 1,421,645
1 The parties agree that $30,020 of this interest is not deductible on
Schedule C, but it is deductible as investment interest.
2 The parties stipulated that petitioners deducted $67,543 in research
and development expenses. However, the column totals to $67,544 and the
notice of deficiency and petitioners’ 1995 return state $67,534 as the amount
deducted.
CPSG, Inc. paid the following amounts to petitioner as
minimum royalties pursuant to the development agreement:
Date Amount For Period
01/28/97 $52,500 1/31/97 and 4/30/97 (Advance)
03/31/97 105,000 6/30/97 - 3/31/98
12/30/98 78,750 6/30/98 - 12/31/98
12/20/99 1108,150 3/31/99 - 12/31/99
TOTAL 344,400
1The $108,150 amount included the royalty payment of $105,000 plus
interest of $3,150 for the period 03/31/99 to 12/31/99. On or about Aug. 1,
11The deduction of these research and development expenses
in 1996 substantially eliminated an approximately $1.4 million
capital gain realized from the sale of Unify Corp. stock.
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