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character of the properties as distinguished from their grade or
quality. Id.; sec. 1.1031(a)-1(b), Income Tax Regs.
In Commissioner v. Crichton, 122 F.2d 181, 182 (5th Cir.
1941), affg. 42 B.T.A. 490 (1940), the Court of Appeals for the
Fifth Circuit held that the exchange of an overriding royalty
interest in minerals for a city lot qualified as a like-kind
exchange. See also Rev. Rul 68-331, 1968-1 C.B. 352, in which it
was ruled that the exchange of an oil producing lease for a fee
simple title to a ranch qualified as a like-kind exchange.
Conversely, in Fleming v. Commissioner, 24 T.C. at 823-824,
we held that the exchange of an assignment of carved-out oil
payment rights for a fee interest in real estate failed to
qualify because they were not like-kind properties, even though
applicable State law characterized the oil payment rights as an
interest in real estate.
In Koch v. Commissioner, 71 T.C. at 65, we reconciled the
difference in the holdings of Crichton and Fleming as follows:
The main distinction between the two transactions is
the duration of the interests--an overriding royalty
interest continues until the mineral deposit is
exhausted whereas a carved-out oil payment right
terminates usually when a specified quantity of
minerals has been produced or a stated amount of
proceeds from the sale of minerals has been received.
Petitioner attempts to distinguish the coal supply contracts
here from the carved-out production payment rights in Fleming, on
the basis that the supply contracts are more extensive in scope
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