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issue, the Court of Appeals remanded the case to us for a
determination of that factual issue. Id. at 856.
Upon remand, petitioners and respondent entered into renewed
settlement negotiations of the water rights adjustment, and on
September 12, 2002, petitioners and respondent agreed to a final
settlement of all aspects of the water rights adjustment under
which petitioners’ Federal income tax liability relating to the
sale of their water rights will be less than what it would have
been under petitioners’ qualified offer that petitioners made in
May of 1999.
For a discussion of aspects of the qualified offer provision
of section 7430(c)(4)(E), see Haas & Associates Accountancy Corp.
v. Commissioner, 117 T.C. 48, 54-63 (2001), affd. 55 Fed. Appx.
476 (9th Cir. 2003).
Respondent now claims that, as a matter of law, the
settlement limitation reflected in section 7430(c)(4)(E)(ii)(I)
is applicable to petitioners’ May 12, 1999, qualified offer.
Generally, under the settlement limitation of section
7430(c)(4)(E)(ii)(I), where the parties settle a tax adjustment
rather than litigate and obtain a court determination of the
adjustment, the qualified offer provision will not apply.
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