Poison Creek Ranches #1, Ltd., Poison Creek Ranches #2, Ltd., Poison Creek Ranches #3, Ltd., Poison Creek Ranches #4, Ltd., Walter J. Hoyt, III, Tax Matters Partner, et al. - Page 5

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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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