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Vanderbilt Law Review

First Page

825

Abstract

One of the unique facets of American federalism involves the interaction of state court decrees which determine or characterize an individual's property rights with subsequent federal court litigation which imposes the federal tax burden upon those rights. While Congress determines what relationships are to be taxed, state law creates and state court adjudications measure these relationships.' In 1934 the Supreme Court formulated the standard that the state court decision was to be followed by a federal tax court in the absence of collusion, since the decree established the state "law" in regard to the relevant property. However, the definitional and conceptual problems encountered by the various circuit courts led to a melange of interpretations and an inconsistent application of the Supreme Court test. The ensuing diversity in the circuits was resolved in June of 1967 with the Supreme Court decision in Commissioner v. Estate of Bosch. Holding that a state trial court adjudication of property rights is not binding upon subsequent tax litigation in a federal court and that the federal court is free to conduct an independent inquiry into the state "law" in the absence of a statement by the state's highest court, the Court discarded the old "binding unless collusive" test and established a more restrictive standard. The purpose of this note is to examine the decision and its context and to evaluate the analytical and practical consequences of the new rule.

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