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Susan did not recognize COD income (i.e., that COD income from
the partnership did not pass through to Susan), and therefore
petitioners were not required to reduce Susan's NOL.
Petitioners' contention that COD income is not income under
Texas law is irrelevant.
In dealing with the meaning and application of an
act of Congress enacted in the exercise of its plenary
power under the Constitution to tax income and to grant
exemptions from that tax, it is the will of Congress
which controls, and the expression of its will, in the
absence of language evidencing a different purpose,
should be interpreted "so as to give a uniform
application to a nation-wide scheme of taxation".
* * * Congress establishes its own criteria and the
state law may control only when the federal taxing act
by express language or necessary implication makes its
operation dependent upon state law. [Lyeth v. Hoey,
305 U.S. 188, 194 (1938) (quoting Burnet v. Harmel, 287
U.S. 103, 110 (1932)).]
In the application of a Federal revenue act, State law
determines the nature of the legal interest that the taxpayer had
in the property or income sought to be reached by the statute.
Morgan v. Commissioner, 309 U.S. 78, 82 (1940). "In the
determination of ownership, state law controls. 'The state law
creates legal interests but the federal statute determines when
and how they shall be taxed.'" United States v. Mitchell, 403
U.S. 190, 197 (1971) (citations omitted). "Thus, with respect to
community income, as with respect to other income, federal income
tax liability follows ownership." Id. (citing Blair v.
Commissioner, 300 U.S. 5, 11-14 (1937)); see also United States
v. Mitchell, supra at 195 (stating that the Court looked to the
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