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other provisions of the agreement.
For example, although not relevant to these cases, the
agreement provides that cattle owned by the partnerships as of
January 1, 1980, will be considered fully depreciated at the end
of 1981. Thus the agreement provides that there are cattle that
are no longer subject to depreciation.
In addition, as set out above, the agreement provides that
payments made by the partnerships to Ranches by transfer of
calves or culled cows will constitute ordinary income in a manner
consistent with the decision in Bales v. Commissioner, T.C. Memo.
1989-568. In that case the Court stated that dispositions of
breeding cattle, including culled cows, are taxed pursuant to
section 1231(a) subject to the recapture provisions of section
1245. The Court further stated that calves that are used for
payment on the notes are not held for breeding purposes and are
not accorded section 1231 treatment. Bales v. Commissioner,
supra. Such calves would not be subject to an allowance for
depreciation and thus would not be subject to the limitation on
depreciable cattle set forth above. Sec. 1.167(a)-6(b), Income
Tax Regs. If petitioner's reading were accepted, this provision
concerning calves would be rendered meaningless.
We note that the agreement is not completely clear in all of
its terms. In part, the agreement provides: "For Federal income
tax purposes, all the cattle are adult breeding cattle, each
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