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general tax principles, the subject payment is
a deposit in the nature of a loan and is not
includable in income in 1988 under Commissioner
v. Indianapolis Power & Light Co., 493 U.S. 203
(1990). Ps further argue that A's right of
recoupment is a production payment under sec.
636(a), with the result that the transaction
must be treated as a loan. In support thereof,
Ps assert that sec. 1.636-3(a)(1), Income Tax
Regs., is invalid to the extent it limits the
definition of production payment to interests
which are economic interests in the mineral in
place.
Held: A's payment is an advance payment
for the purchase of gas under the gas purchase
contract and is includable in M's income in
the year received. Held, further, sec. 1.636-
(a)(1), Income Tax Regs., is valid and, A's right
of recoupment is not a production payment under
sec. 636(a).
Frederick R. Parker, Jr., and W. Deryl Medlin, for
petitioners.
Martin M. Van Brauman and Josh O. Ungerman, for
respondent.
OPINION
WHALEN, Judge: These consolidated cases are before
the Court to decide petitioners' motion for summary
judgment. The issue presented by petitioners' motion is
whether a payment received in settlement of a contractual
dispute involving a so-called take or pay contract for
the purchase and sale of natural gas is includable in
petitioners' income in the year received, as respondent
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