126 T.C. No. 14
UNITED STATES TAX COURT
PEABODY NATURAL RESOURCES COMPANY, f.k.a. HANSON NATURAL
RESOURCES COMPANY, CAVENHAM FOREST INDUSTRIES, INC., A PARTNER
OTHER THAN THE TAX MATTERS PARTNER, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket Nos. 20328-04, 6899-05. Filed May 8, 2006.
A partnership exchanged operating gold mines,
including realty, for operating coal mines. The coal
mines were subject to two coal supply contracts that
obligated the mine owner to provide electric utilities
with coal. The benefits and obligations under the
contracts were governed by New Mexico law. The gold
mines were not subject to supply contracts. The
partnership treated the entire exchange as “tax free”
under sec. 1031, I.R.C. R determined that the coal
supply contracts were not real property and/or like-
kind property and constituted “boot” so that the value
of the supply contracts would be taxable in the year of
the exchange.
Held: The coal supply contracts were covenants
running with and appurtenant to the real property under
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