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(6) Whether the contract rights primarily represented
compensation for personal services. [Foy v. Commissioner,
84 T.C. at 70.]
Both parties herein rely on certain Supreme Court cases that
involve general, nontax issues regarding water rights. See
Nevada v. United States, 463 U.S. 110 (1983); Ickes v. Fox, 300
U.S. 82 (1937). At issue in Nevada were rights of landowners to
water from the Truckee River in Nevada. At issue in Ickes were
rights of landowners to water from the Sunnyside Unit of the
Yakima Project in Washington. The water rights in both cases
were based on the Reclamation Act, ch. 1093, 32 Stat. 388 (1902).
In Nevada v. United States, supra at 126, the Supreme Court
explained that "the beneficial interest in the rights confirmed
to the Government resided in the owners of the land within the
Project to which these water rights became appurtenant upon the
application of Project water to the land," and that "the law of
Nevada, in common with most other western States, requires for
the perfection of a water right for agricultural purposes that
the water must be beneficially used by actual application on the
land."
In Ickes v. Fox, supra at 94-95, the Supreme Court stated:
Although the government diverted, stored and
distributed the water, the contention of petitioner
that thereby ownership of the water or water-rights
became vested in the United States is not well founded.
Appropriation was made not for the use of the
government, but, under the Reclamation Act, for the use
of the land owners; and by the terms of the law and of
the contract already referred to, the water-rights
became the property of the land owners, wholly distinct
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