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Property owners in this market rarely mine their own
deposits, instead leasing their land to sand-and-gravel operators
for a royalty. But royalties are no more standardized than sales
of sand and gravel--some royalties are paid as a flat rate per
ton or cubic yard, and some are calculated at different rates
based on the different grades of sand and gravel actually
produced. Some royalties fluctuate with the market and some are
set for the life of a contract.
B. The Hamblen Road Property
The property at issue in this case is a 31.41-acre tract
located on Hamblen Road in Harris County, Texas. This tract was
less than half of a larger parcel bought by an agent of a family
named Wilkerson at a tax foreclosure auction in 1994. The
Wilkersons had spotted white pines growing on the property before
deciding to make a bid. White pines are valuable trees, and the
Wilkersons thought that they might be bidding against people who
didn’t see their value. They were right--their agent
successfully purchased the entire property for a little over
$50,000, and the Wilkersons quickly cut the timber and sold it
for about $45,000. In 1996, they transferred the entire parcel
to a partnership named Terrene Investments, Ltd., that their
family controls. Terrene is a limited partnership formed under
Texas law, with its principal place of business in Texas, and
under the Internal Revenue Code it is classified as a TEFRA
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Last modified: November 10, 2007