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The parties refer to Rev. Rul. 66-58, 1966-1 C.B. at 187, in
which the tax treatment of the sale of cotton acreage allotments
was addressed. In the ruling, it is stated that--
Where a taxpayer has acquired * * * [a cotton]
allotment along with the land to which it relates, as a
unit, the cost or other basis of the entire unit should
be allocated between the land and the allotment in
accordance with the relative fair market values of such
properties on the date of acquisition. * * *
The ruling, however, also explains--
Of course, no portion of the basis of land, acquired
prior to the issuance of the cotton allotment, can be
allocated to such allotment.
Our discussion of the partnership's water rights in the
context of the above capital asset issue (namely, among other
things, that water rights the partnership received in 1983
related to and were dependent upon the land the partnership
acquired in 1976) is not inconsistent with our analysis and
holding on the instant issue that the water rights were
sufficiently distinct and separate from the partnership's
ownership interest in the land to preclude any allocation of the
partnership's cost or tax basis in the land to the partnership's
water rights.
The partnership's water rights were related to and dependent
upon the partnership's land ownership, and the partnership's
water rights constituted capital assets of the partnership. At
the same time, however, as discussed, the partnership's water
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