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Ranch mine to others if doing so would impair its ability to
satisfy its coal supply contract obligations to WEF.
The WEF contract terms were to be interpreted under the laws
of New Mexico. Under the WEF contract, Santa Fe would be allowed
to supply coal from mines other than Lee Ranch mine if it were
unable to remove coal from Lee Ranch mine on account of a force
majeure. The WEF supply contract provided that it would “inure
to the benefit of and be binding upon the Parties and their
respective successors and assigns.”
Peabody and Santa Fe determined that the mining assets each
exchanged had a total value of approximately $550 million. In
accordance with section 1.1031(j)-1(a)(2), Income Tax Regs.,
Peabody separated into exchange groups the assets it transferred
and received. Peabody treated the gold mines, coal mine
reserves, and appurtenant supply contracts as real property. It
valued the Lee Ranch mine coal reserves at $272.1 million. On
its income tax returns for the years in issue, Peabody treated
its exchange of the gold mining assets for coal mining assets as
a like-kind exchange under section 1031.
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Last modified: May 25, 2011