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contracting the work to others. In both cases property rights to
the technology resulting from the R&D were retained by the person
or partnership responsible for performing the R&D and in both
cases the owner of those property rights in the technology
licensed the technology to a user in return for a royalty. Both
petitioner and the partners in Scoggins also had expertise in the
type of technology that was the subject of the R&D. Finally, in
both cases it was clear that neither petitioner nor the
partnership was engaged in a trade or business at the time that
the R&D expenditures were paid or incurred. Despite these
similarities, we disagree that Scoggins is dispositive of the
section 174 issue.
The primary focus of the Court of Appeals’ opinion in
Scoggins, does not appear to have been whether the taxpayers had
the objective intent to enter into a business of their own with
the fruits of the R&D expenditures. Indeed, after reciting the
facts, the Court stated:
There is no question that Scoggins and Christensen
had the objective intent to enter into the
business of marketing the reactor if the reactor
proved successful. The only question is whether
they had a realistic prospect of engaging in the
business as a partnership, or whether by virtue of
the agreement with the corporation, they had
deprived the partnership of the capability of
doing so. [Id. at 953.]
The Court of Appeals then analyzed the taxpayers’ “capability” of
engaging in a trade or business with the fruits of R&D. In doing
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