-407-
enter a trade or business with respect to the technology, the
entity will be treated as a passive investor, not eligible for
deductions under section 174.
As indicated previously, in Estate of Cook v. Commissioner,
T.C. Memo. 1993-581, the Court addressed another IRC
shareholder’s entitlement to a deduction for IRC’s claimed 1979
research and development expense. In Estate of Cook, the Court
rejected the taxpayers’ contention that a realistic prospect
existed of IRC’s entering into a trade or business to exploit the
results of the research and experimentation it acquired from
Newport.
B. The Parties’ Arguments
Because respondent raised this issue in an amendment to
answer in which he asserted an increased deficiency, respondent
has the burden of proof on this issue under Rule 142(a)(1).
Respondent asserts the identical research and development expense
and business expense issues were presented to and decided by the
Court in Estate of Cook, and respondent maintains the Court’s
reasoning and conclusions in Estate of Cook are equally
applicable here.
Petitioners contend the issues are purely factual and the
present cases can be distinguished from the Estate of Cook case
on the grounds that (1) Respondent, not petitioners, bears the
burden of proof; and (2) Kanter was permitted to testify in these
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