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Petitioners and respondent rely on various cases, Arizona
law, and other authority. In Inaja Land Co. v. Commissioner,
9 T.C. 727, 736 (1947), because it was impossible to allocate
with reasonable accuracy a separate cost to easements the
taxpayer sold, the Court allocated the taxpayer's cost of
underlying land to funds received on sale of the easements. The
taxpayer in Inaja, however, in 1928 had purchased the land not
just with an expectation but with a legal right not to have the
land flooded from unexpected upstream water sources. In
subsequent years, in connection with construction of a tunnel,
the taxpayer’s land located downstream from the tunnel was
flooded, and the responsible government agency paid the taxpayer
a lump sum for the easement to flood the taxpayer's land.
In Trunk v. Commissioner, 32 T.C. 1127, 1139 (1959),
payments received for relinquishment of a right to a possible
condemnation award were treated as received in exchange for a
capital asset. We also held that because it was impossible or
impracticable to ascertain the taxpayer's specific cost basis for
the right that was relinquished, which was derived from the
taxpayer's right of ownership in the entire property, the
payments received were to be offset by the taxpayer's cost basis
in the entire property. In the instant case, however, the
partnership's ownership of the land was not acquired with any
vested right to Colorado River water. Trunk is distinguishable.
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