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Russell. Alternatively, the estate argues that the grain sales
income is attributable to Russell because he received it under a
claim of right and without any restriction on his right to
dispose of the income.
I. Ownership of Grain at Time of Sale
Initially, we must decide whether the grain sold in 1994 was
owned by Russell or BBP. If the grain sold in 1994 was owned
solely by Russell and was not partnership property, then he will
be liable for any tax attributable to the entire amount of grain
sales proceeds in 1994.
The grain that was sold in 1994 was grown in prior years and
was an asset of BBP. The parties do not dispute that the grain
was part of the farming activity which was an operation of BBP.
BBP’s 1994 Form 1065 reported the grain sales gain as income to
the partnership and the estate and Russell each were allocated
one-half of the gain. The estate and Russell each reported one-
half of the grain sales income on their respective 1994 tax
returns.
In the settlement agreement signed August 24, 1998, it was
stipulated that all grain proceeds held on or after November 1993
in the name of BBP were the sole property of Russell.
Handwritten notes of Stephen Ballantyne, dated August 23, 1998,
and entitled “Plaintiff’s Settlement Proposal”, state that the
plaintiffs “need to word agreement so that Estate will not pay
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