- 22 -
are sufficiently substantial and regular to constitute a trade or
business” is a factual determination. I-Tech R&D Ltd. Pship. v.
Commissioner, supra; see Green v. Commissioner, 83 T.C. 667, 687
(1984). However, in no event is a deduction appropriate where
the taxpayer acts solely in an investor capacity. Green v.
Commissioner, supra; see Higgins v. Commissioner, 312 U.S. 212
(1941); I-Tech R&D Ltd. Pship. v. Commissioner, supra; Universal
Research & Dev. Pship. No. 1, et al. v. Commissioner, T.C. Memo.
1991-437.
Whether a taxpayer has a realistic prospect of using the
fruits of R&D expenditures in a future business of his own
involves a two-part test. “[A] taxpayer demonstrates such a
[realistic] prospect by manifesting both the objective intent to
enter such a business and the capability of doing so.”16 Kantor
v. Commissioner, 998 F.2d 1514, 1518 (9th Cir. 1993), affg. in
part and revg. in part T.C. Memo. 1990-380; see Zink v. United
States, 929 F.2d 1015 (5th Cir. 1991); Spellman v. Commissioner,
supra; Levin v. Commissioner, 832 F.2d 403, 406-407 (7th Cir.
1987), affg. 87 T.C. 698 (1986). Generally, in determining
whether there is a “realistic prospect,” we look solely to the
period during which the expenditures were incurred. Kantor v.
16A taxpayer manifests his “capability” to enter into a
business by his technical expertise to market the new technology
and his financial ability to conduct the business. Scoggins v.
Commissioner, 46 F.3d 950, 953 (9th Cir. 1995), revg. T.C. Memo.
1991-263.
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