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-- calves are not section 1231(a) property; and
-- although culled cattle are section 1231(a) property,
the gain on which may be long term capital gain
(depending on the holding period), depreciation allowed
must be recaptured as ordinary income under the
provisions of section 1245.
Principal payments equal to 10% of the face amount of the
notes payable to Ranches will begin according to terms of
the notes -- in the sixth year of the partnership * * *
The agreement includes a provision listing "the total number
of cattle in service and subject to depreciation by the investor
partnerships" for each of the taxable years 1980 through 1986.
The Stipulation of Facts provides, in part:
15. All of the payments on the promissory notes made
by the partnerships to Hoyt & Sons Ranches beginning in the
sixth year after the respective notes were executed were
paid by transferring cattle with a zero basis, rather than
cash. * * *
16. The petitioners agree that all of the figures
shown on the schedules (Joint Exhibits 372-NH) [a schedule
of the interest and principal due for each of the years 1983
through 1986] are correct. The petitioners agree that all
of the interest and principal payments beginning in the
sixth year of the notes were made by the transfers of cattle
rather than cash. * * *
The following terminology is used in the cattle business.
Cattle are classified as calves from birth to weaning; heifer
calves being female calves. After weaning, females are referred
to as heifers or yearling heifers. A heifer that bears a calf is
thereafter a cow. Culled cows are cows that are removed from the
breeding herd because they are suffering performance problems,
such as not producing milk or not breeding. Cows may be culled
due to age.
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