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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
omitted.]
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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