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In 1993, as investors in a partnership named Saddle Mountain
Ranch which owned land in Harquahala Valley, Arizona (the
partnership), petitioners received a portion of $28.7 million
paid by the Federal Government to certain Harquahala Valley
landowners in connection with the landowners' relinquishment of
the right each year to receive Colorado River water to irrigate
their land (water rights).
Initially, the parties cross-move for partial summary
judgment on the issue as to whether the partnership’s water
rights constitute capital assets. Respondent would treat the
partnership's water rights as not rising to the level of capital
assets.
If, as a matter of partial summary judgment, we conclude
that petitioners' water rights do constitute capital assets, then
the parties cross-move for partial summary judgment on the issue
as to whether the funds should be regarded as having been
received in a sale or exchange for the water rights so as to
qualify the funds received as capital gain income.
If each of the above issues is resolved in favor of
petitioners, the parties cross-move for partial summary judgment
on the issue as to whether any of the partnership's approximate
$675,000 tax basis in its ownership interest in Harquahala Valley
land is allocable to and would offset funds received for the
water rights.
If each of the above issues is resolved in favor of
petitioners, petitioners then move for partial summary judgment
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Last modified: May 25, 2011