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IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
_____________________
No. 97-60544
_____________________
WILLIAM G. STREET, ESTATE OF, Deceased,
Anne Street Skipper, Executrix,
Petitioner-Appellant,
versus
COMMISSIONER OF INTERNAL REVENUE,
Respondent-Appellee.
_________________________________________________________________
Petition for Review from the Decision of the
United States Tax Court
_________________________________________________________________
September 3, 1998
Before JOLLY, SMITH, and BARKSDALE, Circuit Judges.
E. GRADY JOLLY, Circuit Judge:
The only question raised by this appeal is whether the entire
amount of a community property insurance policy made payable to a
decedent's estate must be included in his gross estate for federal
tax purposes if it is determined, under Texas law, that the
designation of beneficiary was not made in fraud of the decedent's
spouse. Both the Commissioner of Internal Revenue and the Tax
Court answered this provocative question in the affirmative,
arguing that the no-fraud finding took the policy out of "the
regime of community property." We affirm, although on slightly
different grounds.

I
Amma and William Street were married in 1983. They resided
together in the state of Texas until William's death in 1990.
Before his death, William bought several insurance policies on his
own life totaling some $1.3 million. He named his estate as
beneficiary.
Although William substantially provided for Amma in a fairly
standard widow's election will, she elected not to take thereunder;
instead, she claimed her one-half interest in the community
property. In conjunction with this election, Amma filed a claim in
Texas state court against William's estate, asserting, among other
things, that she was entitled to one-half of the life insurance
proceeds because the premiums had been paid with community funds.
William's children by a previous marriage, the sole remaining
beneficiaries under the will, responded with a state court
declaratory judgment action, and the whole unpleasant affair
eventually went to trial in 1993.
Pending the outcome of that litigation, and apparently in
anticipation of a ruling for Amma, the Estate filed a federal
estate tax return in which only one-half of the insurance proceeds
were included in William's gross estate. On August 19, 1993, the
state district court belied the Estate's assumption, ruling that,
although the insurance proceeds were community property, pursuant
2

to longstanding Texas law they were subject to William's exclusive
management and control, and his designation of his own estate as
beneficiary had not been so in fraud of Amma's interest that it
could be invalidated by the court. In short, all insurance
proceeds were held to belong to William's estate. This decision
was affirmed on appeal. See generally Street v. Skipper, 887
S.W.2d 78 (Tex. App.-Ft. Worth 1994, writ denied).
II
Based on the state court's ruling, on October 12, 1994, the
Commissioner issued a Notice of Deficiency to the Estate. Relying
on I.R.C. � 2042(1), which provides that "[t]he value of the gross
estate shall include the value of all property . . . to the extent
of the amount receivable by the executor as insurance under
policies on the life of the decedent," the Commissioner asserted,
among other things, that the full value of the insurance proceeds
should have been included in William's gross estate. The Estate
contested
this
assertion,
pointing
to
Treas.
Reg.
� 20.2042-1(b)(2), which states that "[i]f the proceeds of an
insurance policy made payable to the decedent's estate are
community assets . . . and, as a result, one-half of the proceeds
belongs to the decedent's spouse, then only one-half of the
proceeds is considered to be receivable by or for the benefit of
the decedent's estate." The dispute ultimately went to the Tax
3

Court, where, on January 21, 1997, judgment was rendered in favor
of the Commissioner. In a reasoned written ruling, the court held
that, under the Texas law as applied by the state court in the
underlying suit, William's designation of beneficiary and
subsequent death "removed [the insurance proceeds] from the regime
of community property" such that they were indeed fully includable
in his gross estate under I.R.C. � 2042(1) and Treas. Reg. �
20.2042-1(b)(2). From this final judgment William's estate timely
appeals.
III
We review a decision of the Tax Court applying the same
standards used in reviewing a decision of the district court:
questions of law are reconsidered de novo; findings of fact are
reviewed for clear error. Estate of McLendon v. Commissioner of
Internal Revenue, 135 F.3d 1017, 1021 (5th Cir. 1998).
IV
The Estate argues primarily that the Tax Court misconstrued
Texas and federal law in rendering its decision. Citing pointed
criticism leveled at the Tax Court by a noted authority on Texas
community property law,1 the Estate contends that the best
1See Stanley M. Johanson, Recent Decisions Affecting Estate
Planning, University of Texas School of Law 45th Annual Taxation
Conference 35 (October 24, 1997) (noting, with respect to the Texas
community property aspect of the Tax Court's ruling in this very
case that, "This decision is not only wrong, it's outrageous!").
4

construction of the situation is not that the proceeds were
"removed from the regime of community property" for purposes of
Treas. Reg. � 20.2042-1(b)(2), but that William Street, acting as
agent for the community, made a "gift" of Amma's one-half interest
in the proceeds to his estate in addition to the essentially
testamentary designation of his own one-half interest. Under this
interpretation, the Estate urges, one-half of the proceeds should
be taxed as part of William's gross estate under I.R.C. � 2042(1)
and Treas. Reg. � 20.2042-1(b)(2), but the rest should be taxed as
a gift from Amma pursuant to Treas. Reg. � 25.2511-1(h)(9), which
provides that "[w]here property held by a husband and wife as
community property is used to purchase insurance upon the husband's
life and a third person is . . . designated as beneficiary . . .,
there is a gift by the wife at the time of the husband's death of
half the amount of the proceeds."2
Although we have noted the tension among I.R.C. � 2042(1),
Treas. Reg. � 20.2042-1(b)(2), and Texas community property law in
the past, see Estate of Cavenaugh v. Commissioner of Internal
2We note in passing the rather inequitable nature of this
argument. Anne Street Skipper, the current executrix of William's
estate, was one of the victors in the underlying state court suit
concerning the ownership of the insurance proceeds. If we
understand Ms. Skipper correctly, she wants this court to now edict
that Amma Street be compelled to pay gift taxes on the very
insurance proceeds that Skipper legally extracted from her in that
state court litigation.
5

Revenue, 51 F.3d 597, 601-02 (5th Cir. 1995), we need not consider
the rather complicated details of the Estate's argument under the
facts of this case, nor need we address Professor Johanson's
interrelated contention that the Tax Court committed an egregious
error of Texas community property law in construing the underlying
state court ruling. As noted above, I.R.C. � 2042(1) provides that
"[t]he value of the gross estate shall include the value of all
property . . . to the extent of the amount receivable by the
executor as insurance under policies on the life of the decedent"
(emphasis added). Whatever "receivable" might mean as a general
matter, and whatever nuances Treas. Reg. � 20.2042-1(b)(2) might
add to that analysis, we find it impossible that insurance proceeds
that were designated as payable to a decedent's estate, and that
were, in fact, paid to his estate, and that further were allowed to
remain in the estate's hands following a state court challenge
regarding their ownership, could somehow be characterized as not
"receivable by the executor" for purposes of I.R.C. � 2042(1). Cf.
Commissioner of Internal Revenue v. Estate of Hubert, 117 S.Ct.
1124, 1141 (1997) (noting that interpretive regulations must
"implement the congressional mandate in some reasonable manner" to
receive court deference). As such, there can be no contention that
the entire amount of the insurance proceeds in this case was not
6