Stephen R. and Mary K. Herbel - Page 26

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             citing section 1.451-1(a), Income Tax Regs., argues that                 
             Malibu is required under that method of accounting to                    
             include the payment in income in the year of receipt.                    
             Respondent acknowledges that section 1.451-5(g), Income Tax              
             Regs., provides an exception to the general rule in section              
             1.451-1(a), Income Tax Regs., for certain advance payments               
             treated as mortgage loans pursuant to section 636(a).                    
             However, respondent argues that the subject payment is not               
             eligible for the exception for two reasons.  First, it is                
             not an “advance payment”, as defined by section 1.451-5(a),              
             Income Tax Regs., because Malibu is not a taxpayer using an              
             accrual method of accounting as required by that provision.              
             Second, it is not a “production payment” for purposes of                 
             section 636(a) because "recoupment by Arkla can occur by                 
             gas deliveries or by a cash repayment (but not by cash                   
             payments from the sale of the minerals), the payment from                
             Malibu fails to satisfy the Treas. Reg. � 1.636-3(a)                     
             criteria".                                                               
                  Finally, respondent asserts that "there are genuine                 
             issues as to material facts", and that summary judgment is               
             not proper.  See Rule 121.  All Rule references are to the               
             Tax Court Rules of Practice and Procedure.  In support of                
             that position, respondent relies on two affidavits attached              
             to respondent’s objection, one by an employee of Arkla's                 







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