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Ranches to the partnerships; promissory notes from the
partnerships to Ranches; and bills of sale from the partnerships
to Ranches.
The partnerships reported income recognized on the transfer
of cattle to Ranches in payment of principal and interest as gain
under section 1231. Respondent adjusted this item to zero on the
final partnership administrative adjustments issued to each
partnership.
Pursuant to the agreement, the numbers of cattle subject to
depreciation by the partnerships for the taxable years in issue
were reduced. All cattle were subject to revised valuation as
well. As a result, the amounts of principal due on the notes
payable to Ranches for the cattle purchased were treated as
reduced, and respondent recalculated the annual interest due
based on these amounts according to the provisions of the
agreement. This interest was to be computed on an original
principal balance of $4,000, the settled cost basis of the
breeding cattle per head, times the number of cattle in service
during the first year of each partnership. The agreement
provides that this new principal amount is the amount of
partnership debt to be treated as personally assumed by the
partners.
Schedule F Income
In part, the agreement provides:
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Last modified: May 25, 2011