William T. and Nicole L. Gladden - Page 13




                                        - 13 -                                         

               On June 5, 1995, the U.S. General Accounting Office issued a            
          report to a congressional committee regarding relinquishment by              
          HID to the Interior Department of its Harquahala Valley water                
          rights.  Therein, that transaction is described as a “sale of a              
          water entitlement” by the Harquahala Valley landowners.                      

                                      Discussion                                       
          Capital Asset Treatment of Water Rights                                      
               As explained, petitioners contend, as a matter of law and               
          partial summary judgment, that the water rights of the                       
          partnership constitute capital assets and that relinquishment                
          thereof by the partnership constituted a sale or exchange.                   
          Respondent contends, also as a matter of law and partial summary             
          judgment, that relinquishment by the partnership of water rights             
          did not constitute a sale or exchange of a capital asset and                 
          therefore that the $1,088,132 the partnership received in 1993               
          should be treated as ordinary income.                                        
               In order for contract rights to qualify as capital assets               
          under section 1221, the contract rights must constitute                      
          “property” of the taxpayer and not constitute any of the five                
          types of property excluded from capital gain treatment under                 
          section 1221(1) through (5) (namely, (1) inventory;                          
          (2) depreciable personal property or real property used in a                 
          trade or business; (3) certain intangible property; (4) accounts             






Page:  Previous  3  4  5  6  7  8  9  10  11  12  13  14  15  16  17  18  19  20  21  22  Next

Last modified: May 25, 2011