- 24 -
However, Peabody seeks to come within the safe harbor of
section 1.1031(a)-1(c), Income Tax Regs., by relying on the
renewal terms of the supply contract that might cause the
contracts to last 30 years or more.11 In Century Elec. Co. v.
Commissioner, 15 T.C. 581, 591-592 (1950), affd. 192 F.2d 155
(8th Cir. 1951), we indicated that subsequent 10-year periods
were added to the initial term of a 25-year lease to meet the
requirements of a leasehold for 30 years or more under the
Treasury regulation safe harbor. See also Rev. Rul. 78-72, 1978-
1 C.B. 258, which would allow the addition of optional renewal
periods to determine if a leasehold interest was for 30 years or
more.
10(...continued)
where the water right, whatever its size, is in
perpetuity, as distinguished from a right to a specific
total amount of water or to a specific amount of water
for a limited period, the water rights and the land
involved are regarded as sufficiently similar to
constitute property of a like kind within the meaning
of section 1031(a) of the Code. * * *
11We previously have indicated that a short-term leasehold
of real property is not equivalent to a fee interest for purposes
of sec. 1031. Capri, Inc. v. Commissioner, 65 T.C. 162, 181-182
(1975); May Dept. Stores Co. v. Commissioner, 16 T.C. 547, 556
(1951); Standard Envelope Manufacturing Co. v. Commissioner, 15
T.C. 41, 48 (1950). As we observed in Smalley v. Commissioner,
116 T.C. 450, 464 n.11 (2001), this characterization of short-
term leasehold interests derives not from any particular State
law characterization but from negative implication of
longstanding regulations which provide that an exchange of a 30-
year lease for a fee interest qualifies as a like-kind exchange
under sec. 1031.
Page: Previous 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 NextLast modified: May 25, 2011