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and duration. Petitioner argues that the contracts involve
“essentially perpetual and unlimited rights” and meet the 30-
year-leasehold safe harbor of section 1.1031(a)-1(c), Income Tax
Regs., because each contract, with renewals, had 30 or more years
to run at the time of the exchange.
Peabody’s right to mine and extract coal from the Lee Ranch
mine land derives solely from its ownership of the land in fee
and the coal leases making up that coal mine property, not from
the TEPCO and WEF contracts. As previously discussed, the supply
contracts created servitudes obligating Peabody to mine and
supply coal from the Lee Ranch mine to the utility/buyers
pursuant to those contracts. Those contracts themselves,
however, did not give Peabody the right to mine coal from the Lee
Ranch land.
The supply contracts obligate each utility/buyer to pay a
specified price for Lee Ranch mine coal. In other words, the
contracts afford Peabody specified payment rights with respect to
the coal supplied. In that respect, Peabody’s supply contract
payment rights are incident to, derive almost exclusively from,
and cannot be separated from its ownership of the Lee Ranch mine
land. It is Peabody’s ownership of that mine’s coal reserves
that gives Peabody the right to mine and extract coal from the
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