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partners under section 702 in accordance with his or her interest
in the partnership and is reflected in each partner's adjusted
basis in the partnership pursuant to section 705(a). See secs.
702(a)(1), (2), and (3), 705(a); Babin v. Commissioner, supra;
Gershkowitz v. Commissioner, 88 T.C. 984, 1005 (1987). In the
case of a partnership, the insolvency exception to the
recognition of COD income provided by section 108(a) is applied
at the partner level. See sec. 108(d)(6).
As we have found, the COD income was an item of partnership
income that passed through to the partners. We now turn to State
law to ascertain who owned this income.
Texas is a community property State. Tex. Fam. Code Ann.
secs. 3.001-3.005 (West 1998); Lange v. Phinney, 507 F.2d 1000,
1005 (5th Cir. 1975). Generally, spouses residing in a community
property State are liable for the Federal income tax on one-half
of their community income. United States v. Mitchell, supra.
Income and deductions attributable to community property are also
petitioners' community property. See Tex. Fam. Code Ann. secs.
3.001, 3.002; Adams v. Commissioner, 82 T.C. 563, 567-568 (1984);
Hockaday v. Commissioner, 22 T.C. 1327, 1329 (1954); Harris v.
Harris, 765 S.W.2d 798, 802 (Tex. App. 1989); Marshall v.
Marshall, 735 S.W.2d 587, 594 (Tex. App. 1987).9
9 The decisions of the State's highest court are conclusive
as to that State's law, but in the absence of a decision by that
(continued...)
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