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allocation issue, each of which related to the water rights
adjustment, in our prior opinion we did not address the related
factual issue as to what amount of petitioners’ cost basis in the
land might be allocable to petitioners’ tax basis in the water
rights.
On May 12, 1999, after our above opinion was filed in April
of 1999, petitioners made a “qualified offer” to respondent to
settle the water rights adjustment, which offer respondent did
not accept. On October 20, 1999, a decision was entered in this
case in which we redetermined petitioners’ tax deficiency based
on our prior opinion on summary judgment and on a stipulation
filed by the parties settling remaining issues.
On January 5, 2000, petitioners filed an appeal with the
Court of Appeals for the Ninth Circuit with regard to our partial
summary judgment in favor of respondent on the legal allocation
issue. Respondent did not appeal our partial summary judgment in
favor of petitioners on the capital asset issues.
On August 20, 2001, the Court of Appeals for the Ninth
Circuit in Gladden v. Commissioner, 262 F.3d 851 (9th Cir. 2001),
reversed our partial summary judgment in favor of respondent on
the legal allocation issue and concluded that petitioners may be
entitled to allocate some portion of their cost basis in the land
to their tax basis in the water rights. Because the trial record
had not been developed on aspects of that factual allocation
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