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so, the Court considered the taxpayers’ technical expertise,
their financial ability to conduct the business, and whether
their contractual obligations precluded the likelihood of using
the R&D in a future business. Id. The Court concluded that the
taxpayers had the capability to use the R&D in a future
business.20 In contrast, in the instant case we have found that
petitioner failed the first part of the realistic prospect test
because he had no objective intent to use the R&D in a future
business of his own.
B. Other Schedule C Expenses
In the notice of deficiency, respondent disallowed some of
the expenses that petitioners claimed and deducted on their
Schedules C for the taxable years 1994 and 1996.21 The amounts
of the adjustments at issue are $18,241 and $25,731,
respectively. In the notice of deficiency, respondent claimed
that petitioners had not “established a business purpose for the
expenses claimed.”
20There is a question whether petitioner had the right to
use the developed technology. His use may have depended upon the
enforceability of the terms of the contract between CPG and CPSG,
Inc. which petitioner testified could be canceled by CPG.
Indeed, this potential problem was one of the reasons why
petitioner decided to structure the R&D contract the way he did.
21Additionally, respondent determined that petitioners were
entitled to deduct an additional $22,275 from their 1995 return.
We presume 1995 is not at issue, since respondent allowed
petitioners a greater deduction than was claimed.
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