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other property or boot under section 1031(b), because the
“lessor’s fee simple interest cannot be so fragmented.”
In return for the gold mining property Peabody, among other
things, received the Lee Ranch coal mine, which was subject to
two coal supply contracts. Respondent acknowledges that the Lee
Ranch mine (consisting of fee simple land and coal leases) is
like kind to the gold mining property and qualifies for
nonrecognition treatment under section 1031(a).13 Respondent,
however, contends this case is distinguishable from Koch.
Respondent argues that the coal supply contracts are separable
from the Lee Ranch mine and constitute taxable other property or
boot under section 1031(b). In other words, respondent argues
those two supply contracts can be fragmented and are not
inextricably bound up with Peabody’s ownership of the Lee Ranch
mine’s coal reserves. We disagree.
Although each supply contract is also a contract for the
sale of goods under New Mexico law and does not give the
utility/buyer a right to extract coal from the Lee Ranch mine
land, in the context of this case we do not find those
distinctions to be significant nor to sufficiently distinguish
this case from Koch. Peabody’s right to mine and extract coal
13Apparently, respondent does not dispute that the exchange
of leasehold for fee interest here is all right. In addition
Peabody’s right to mine and extract coal from the Lee Ranch mine
is obviously substantially alike to the right to mine and extract
gold from the two gold mines.
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