The taxpayers deducted the price to develop antibodies for diagnostic kits. The price amounted to $1.75 million per antibody. Evidence showed that the usual development cost of an entire diagnostic kit was between $640,000 and $1,330,000, and that the antibodies only represented 10% of the total cost. There was also evidence that the prices had been set with little regard to the final product of the development.
Angers J. concluded that no reasonable businessperson would have paid what the taxpayers did, and under s. 67 disallowed the deductions entirely.