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partnerships to make the payments of principal and interest to
Ranches by the transfer of cattle. Petitioner contends that the
provision in the settlement agreement requiring payments of
principal on the notes must be read to include petitioner's
intention to have the partnerships make such payments by the
transfer of registered shorthorn heifers. Petitioner further
contends that the "cattle" transferred in payment of the notes,
as stipulated, were not calves or culled cattle but registered
shorthorn heifers. Petitioner argues that the Bales v.
Commissioner, supra, decision and the agreement do not apply to
the type of cattle transferred.
Respondent argues that the terms of the agreement are clear,
limiting only the number of cattle subject to depreciation, not
the total number of cattle. Because petitioner has stipulated
that all principal and some interest payments on the notes were
made by transferring cattle with a zero basis, respondent claims
that these cattle would be nondepreciable or fully depreciated
and not limited in number by the terms of the agreement.
Respondent argues that the partnerships must recognize ordinary
income in the amount of those payments by the terms of the
agreement.
The settlement of tax cases is governed by general
principles of contract law. We interpret the proper meaning of
the terms of the agreement by looking at the language of the
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