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rights in the telephone systems that were transferred to the
subsidiary.
Generally, State law determines what rights and interests
are transferred by contract for Federal income tax purposes. See
Hoven v. Commissioner, 56 T.C. 50, 55 (1971). Although the
record does not reveal the jurisdiction to which the purchase
agreements are subject, we assume that the purchase agreements
are subject to the same jurisdictions as the assignment and
delegation agreements. Those jurisdictions are New York,
Tennessee, or Texas. Each of these States has enacted statutes
declaring that an agreement that purports to sell property in the
future, when the property is either nonexisting or unidentified
at the time of agreement, does not constitute a sale of
underlying property. See N.Y. Com. Law sec. 2-105 (McKinney
1962); Tenn. Code Ann. sec. 47-2-105 (1963); Tex. Bus. & Com.
Code Ann. sec. 2.105 (West 1967). Instead, a present sale of
nonexisting property or goods operates as a contractual
obligation to buy and sell property at a later date. A
contractual right to purchase nonexisting property in the future
is not a property interest in the underlying property. See Hoven
v. Commissioner, supra at 56-57; Armstrong v. Commissioner, 6
T.C. 1166, 1173-1174 (1946), affd. 162 F.2d 199 (3d Cir. 1947).
The critical question is whether, in entering into the
assignment and delegation agreements, the subsidiary received
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