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payments of principal on the notes must be read to include the
intention to 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 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. A settlement agreement is in essence
a contract. Each party agrees to concede some rights which he or
she may assert against his or her adversary as consideration for
those secured in the settlement agreement. Saigh v.
Commissioner, 26 T.C. 171, 177 (1956). In determining the proper
meaning of the terms of the agreement, we look to the language of
the agreement and the circumstances surrounding its execution.
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