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Contrary to petitioner’s argument, the supply contract
payment rights are not a leasehold interest in a fee property.
As previously held, Peabody’s right to mine and extract coal from
that land comes solely from ownership of the coal mine. We
therefore conclude that the 30-year safe harbor provisions of
section 1.1031(a)-1(c), Income Tax Regs., do not apply. See
Wiechens v. United States, 228 F. Supp. 2d at 1085 (where it was
held that a taxpayer’s 50-year water rights were not equivalent
to a leasehold of a fee for 30 years or more so as to qualify for
the regulation safe harbor).
The underlying rationale for allowing nonrecognition of gain
or loss under section 1031 is the concept that a taxpayer’s
economic situation following the exchange is essentially the same
as it had been before the transaction. This is expressed in the
following quote from the committee report underlying the
predecessor statute to section 1031: “if the taxpayer’s money is
still tied up in the same kind of property as that in which it
was originally invested, he is not allowed to compute and deduct
his theoretical loss on the exchange, nor is he charged with a
tax upon his theoretical profit”. H. Rept. 704, 73d Cong., 2d
Sess. (1934), 1939-1 C.B. (Part 2) 554, 564; see also Biggs v.
Commissioner, 69 T.C. 905, 913 (1978), affd. 632 F.2d 1171 (5th
Cir. 1980). The underpinning supporting section 1031(a) is that
the new property is substantially a continuation of the old
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