S. Victoria Wells - Page 7

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          is utilized to decide the tax consequences.  Aquilino v. United             
          States, 363 U.S. 509, 512-513 (1960).  In Commissioner v. Estate            
          of Bosch, 387 U.S. 456 (1967), the U.S. Supreme Court held that             
          pursuant to Erie R. Co. v. Tompkins, 304 U.S. 64 (1938), "state             
          law as announced by the highest court of the State is to be                 
          followed."  Commissioner v. Estate of Bosch, supra at 465.                  
          Moreover, the court explained:                                              
               the underlying substantive rule involved is based on                   
               state law and the State's highest court is the best                    
               authority on its own law.  If there be no decision by                  
               that court then federal authorities must apply what                    
               they find to be the state law after giving "proper                     
               regard" to relevant rulings of other courts of the                     
               State.  In this respect, it may be said to be, in                      
               effect, sitting as a state court.  [Id.; citation                      
          Thus, our inquiry here focuses on whether, under California law,            
          petitioner was the sole owner of the Paddock Lane property at the           
          time of the sale.                                                           
               California Civil Code section 5110.710 (West 1983) provides            
          that, subject to sections 5110.720 through 5110.730, inclusive,             
          married persons may, by agreement or transfer, with or without              
          consideration, do any of the following:  (a) Transmute community            
          property into separate property of either spouse; (b) transmute             
          separate property of either spouse into community property; or              

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