Earl Vest and Fay Vest, Petitioners-Appellees-Cross v. Commissioner of Internal Revenue, Respondent-Appellant-Cross

GEWIN, Circuit Judge:

This appeal is from a decision of the Tax Court holding (1) that the grant of underground water rights by taxpayers, Earl and Fay Vest, was a sale and the proceeds were entitled to capital gains treatment and (2) that payments received by the Vests for the grant of various surface rights incident to a mineral lease were in the nature of rent and hence were taxable as ordinary income. The Commissioner appeals from the Tax Court’s characterization of the proceeds from the water rights grant and the taxpayers cross-appeal from the ruling on the surface rights payments. We…