- 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 NextLast modified: May 25, 2011