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(bcc - Mr. Wm. Reinhardt) Lo» Angeles, February 9, 1953 80-11 Mr. W. R» House? Ret Proposed aale of water facilities at Las Vegas to the Las Vegas Wa- ter District, Your File 31o0_____ I am returning herewith Mr. Sutton’s letter to you of February 4th with attachments regarding the above mentioned subject. J* I understand that the Union Pacific Railroad Com­pany can offset with capital losses any capital gains which are located with it and that therefore it is de­sirable that the capital gain located with the LVL&W Company, which cannot do this, be as small as possible. The maximum capital gains tax payable by LVL&W Company S2?Jrj,S?y 0f S?!Lpi5n* suSg®sted by Mr. Sutton is 26% of $414,471, or $107,762. If the conveyance of the water production facili­ties owned by the Railroad is made prior to the voting and sale of the bonds of the District, I think the best plan would be Basis No. 3, as this would result in a small capital loss to the LVL&W Company. It might not be possible to sustain with the Bureau of Internal Rev­enue the value indicated in this basis for the water production facilities in view of the fact that the com­bined facilities are being sold to the District for 24 million dollars more or less.’ If we were not able to sustain the value for the water production facilities Indicated in Basis No. 3, the worst that could happen is that i;he value would be reduced to that shown in Basis Nb. 2, resulting in the maximum tax above men­tioned. \ 1 do not see any advantage in Basis No. 1 over Basis No, 2 because the tax consciences are the same, and under Basis No. 1 the Union Pacific Railroad Com­pany remains in the water business unless and until a sale is made by it directly to the District. _ As you know, it is ray personal view that the Union Pacific Railroad Company should dispose of its water production facilities as soon as possible because of