-405-
capital account. The expenditures so treated shall be
allowed as a deduction.
Section 174(a)(1) applies to expenditures paid or incurred by a
taxpayer for research or experimentation undertaken directly by a
taxpayer or to expenditures paid or incurred by a taxpayer for
research or experimentation carried on by another person or
entity on the taxpayer’s behalf. Sec. 1.174-2(a)(8), Income Tax
Regs.
To be entitled to deductions for research and experimental
expenditures, a taxpayer is not required to currently produce or
sell any product. Moreover, a taxpayer need not be currently
engaged in a trade or business in order to qualify for such
deductions. Snow v. Commissioner, 416 U.S. 500, 503-504 (1974).
Nevertheless, in Green v. Commissioner, 83 T.C. 667, 686-687
(1984), the Court stated:
For section 174 to apply, the taxpayer must still be
engaged in a trade or business at some time, and * * *
[the Court] must still determine, through an
examination of the facts of each case, whether the
taxpayer’s activities in connection with a product are
sufficiently substantial and regular to constitute a
trade or business for purposes of such section. [Fn.
ref. and citations omitted.]
A taxpayer must be more than a mere investor to be entitled
to deductions for research and experimental expenditures under
section 174. Id. at 688-689; see also Levin v. Commissioner, 87
T.C. 698, 725-726 (1986), affd. 832 F.2d 403 (7th Cir. 1987). In
the case of an entity claiming deductions under section 174, the
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