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record do not show that the partnerships made payment on the
notes with cattle other than those with a zero basis as
stipulated. Accordingly, the partnerships must recognize
ordinary income in the amounts of the payments of interest and
principal on the notes.
Petitioner's argument concerning the terms of the agreement
and stipulation is not entirely clear, and we will briefly
address the alternate argument we believe petitioner may be
attempting to make. The argument can be summarized as follows:
The agreement sets out the number of cattle subject to
depreciation on an annual basis; as stated in the petition, the
partnerships sold registered shorthorn heifers which had been
held for breeding purposes for over 24 months in payment of the
notes; these cattle would be depreciable; because the number of
cattle subject to depreciation does not decrease in correlation
to the cattle transferred in payment on the notes, the agreement
does not provide the partnerships with sufficient cattle to make
such payments. Therefore, the payments could not have been made
under the binding terms of the agreement.
We are not persuaded by this argument. Even if the cattle
transferred were depreciable, registered shorthorn heifers,
petitioner has stipulated that the cattle had zero basis, and as
explained above, we will not set aside this stipulation.
Therefore, the cattle would be fully depreciated and outside of
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