Revised December 1, 1998

               IN THE UNITED STATES COURT OF APPEALS

                         FOR THE FIFTH CIRCUIT

              ______________________________________

                           No. 97-31277
                        (Summary Calendar)
              ______________________________________

SUSAN TAYLOR MARTIN,
                                                  Plaintiff-Appellant,

                                versus

UNITED STATES OF AMERICA,
                                                  Defendant-Appellee.

 ______________________________________________________________

          Appeal from the United States District Court
              for the Eastern District of Louisiana
 ______________________________________________________________
                        November 12, 1998

Before WIENER, BARKSDALE and EMILIO M. GARZA, Circuit Judges.

WIENER, Circuit Judge:

     In this tax refund suit, Plaintiff-Appellant Susan Taylor

Martin (“Susan”) appeals the district court’s order denying her

motion for summary judgment and granting the cross-motion for

summary judgment of Defendant-Appellee United States of America

(the “government”). Concluding that the district court did not err

in holding that Susan must recognize gain on the $5.75 million

payment she received from Tenneco Gas Louisiana, Inc. (“Tenneco”)1

for the sale of her claims against her former husband’s bankruptcy



     1
      Tenneco Gas Louisiana, Inc. is a subsidiary of Tenneco, Inc.
estate (the “Estate”), we affirm.

                                    I

                         FACTS AND PROCEEDINGS

     Ken Martin (“Ken”) and Susan were married in 1958.           At all

relevant times they lived in Louisiana, and all property that they

acquired while married was community property.           In July, 1990,

Susan and Ken separated; they obtained a legal separation in March,

1991,2 and a divorce in September of that year.

     In February, 1991, before Susan and Ken were legally separated

and before they partitioned their community property, Ken filed for

protection under Chapter 7 of the United States Bankruptcy Code.

As a result, all community property became part of the Estate.

Susan did not join in the bankruptcy petition, but filed two proofs

of claim to protect her interests in the Estate.3           Although Ken

listed no assets in his bankruptcy petition, Susan asserted that




     2
      Susan filed a petition for legal separation in August, 1990.
Separation from bed and board was abolished by 1990 La. Acts, No. 1009, §
1 (eff. Jan. 1, 1991). See comment (c) to La. Civ. Code art. 101; La. R.S.
9:381-84. For cases arising prior to January, 1991, however, a judgment
of separation terminates the community of acquets and gains existing
between spouses under the community property regime. Termination is
retroactive to the date of filing of the petition for separation. La. Civ.
Code art. 2356 (amended 1990).
     3
      Originally, Susan indicated that the premise of her claim was an
“undivided ½ interest in debtor’s community.” On her amended proof,
however, she also asserted “claims for fraud, bad faith management of the
community, breach of debtor’s fiduciary duty, and any and all other
delictual, contractual and quasi-contractual claims.”

                                    2
the community owned valuable rights under a gas purchase contract.4



     On July 1, 1993, Tenneco paid Susan $5.75 million for her

claims against the Estate.5       The following day, Tenneco and the

bankruptcy trustee executed a settlement agreement pursuant to

which Tenneco paid $7 million for an option to buy the Estate’s

rights and interests in the gas purchase contract.6           The trustee

reported this $7 million payment on the Estate’s 1992 federal

income tax return.

     Susan timely filed her federal income tax return for calendar

year 1993, and attached a Form 8275 in which she set forth her

reasons why the $5.75 million she had received from Tenneco was not

     4
      This contract existed between Martin Intrastate Gas Co. (MIG) —— a
corporation formed by Ken —— and Louisiana Intrastate Gas Co. (LIG) ——
another subsidiary of Tenneco, Inc. Tenneco entered into all of the
agreements relevant to this matter. According to Plaintiff’s Statement of
Uncontested Material Facts, the contract required LIG to purchase from MIG
large quantities of gas at a fixed price, which was (at all times pertinent
to this case) quadruple the market price. Although Tenneco, Inc. later
sold all of its interest in LIG, it became the indemnitor to and for LIG
for all liability and performance under the contract.
     5
      On July 9, 1993, the bankruptcy trustee filed a complaint asserting
that the $5.75 million received by Susan from Tenneco was the property of
the Estate. The bankruptcy court ruled against the Trustee, finding that
Susan had sold only her interests as a claimant and not the actual “assets”
of the Estate.
     6
       The Estate thereby became solvent. On March 3, 1994, Tenneco and
the bankruptcy trustee executed an amendment to the 1993 settlement
agreement. This amendment —— approved by the bankruptcy court —— and the
various releases executed pursuant to it (a) settled all outstanding claims
each party had against all other parties in the various law suits over the
gas purchase contract, and (b) effected a distribution of all the assets
in the Estate. Pursuant to the amendment, Tenneco agreed to distributions
by the trustee of all the property in the Estate —— including distributions
to Ken —— without any distribution to itself in satisfaction of the claims
it had acquired from Susan.

                                    3
taxable.    The government disagreed with Susan’s analysis, and

assessed a deficiency calculated by treating the entire payment as

taxable income.    In February, 1996, Susan paid the assessed taxes

and interest, then filed an administrative claim for a refund.             The

following month, the government disallowed her refund claim.

     Immediately following this disallowance, Susan filed suit in

federal district court to recover the claimed refund.                She then

filed a Motion for Partial Summary Judgment on the issue of “what”

she had sold to Tenneco in 1993.          Susan asserted that she had sold

only her claims against the Estate, not any assets of the Estate

itself.    The    court   agreed    and    granted   her   motion,   and   the

government did not appeal.

     Susan subsequently filed another motion for summary judgment

in which she asserted that the payment from Tenneco should not be

treated as taxable income.     The government opposed Susan’s motion,

and filed a cross-motion for summary judgment which the district

court granted.    The court found that she had no basis in her claims

against the Estate that she had sold to Tenneco and held that the

entire $5.75 million she received as proceeds of that sale was

taxable.   Susan timely filed a notice of appeal.

                                      II

                                   ANALYSIS

A.   Standard of Review

     We review a grant of summary judgment de novo, applying the


                                      4
same standard as the District Court.7

B.   Applicable Law

     Section 61(a) of the Internal Revenue Code (“IRC”) provides

that individuals shall be taxed on “all income from whatever source

derived.”8      “Accessions to wealth are generally presumed to be

gross income unless the taxpayer can show that the accession falls

within a specific exclusion.       Exclusions from income are to be

construed narrowly.”9

     Susan contends that the payment from Tenneco should not be

included in her gross income because it is either (1) an excludable

distribution from the Estate pursuant to IRC § 1398(f)(2); or (2)

an excludable payment in satisfaction of her inchoate marital

rights pursuant to the rule of United States v. Davis.10

     1.       IRC § 1398

     Under the Bankruptcy Code, the commencement of either a



     7
      Firesheets v. A.G. Bldg. Specialists, Inc., 

, 730 (5th
Cir. 1998).
     8
      26 U.S.C. § 61(a).
     9
      Wesson v. United States, 

, 898 (5th Cir. 1995). For
federal income tax purposes, the amount of gain from a sale or other
disposition of property is determined by subtracting the basis of the
property (generally its cost, see 26 U.S.C. § 1012) from the amount
realized on the sale (generally the selling price, see 26 U.S.C. § 1001(a)
and (b)). See Byram v. Commissioner, 

, 1236 (5th Cir. 1977).
The entire amount of gain from the sale of property must be recognized by
the taxpayer, unless the gain falls within a specific exclusion under the
Internal Revenue Code. See 

. Susan does not dispute
the amount of gain on which she owes taxes, but rather whether she must
recognize any gain at all.
     10
          

(1962).

                                    5
liquidation (Chapter 7) or a reorganization (Chapter 11) proceeding

creates     a   bankruptcy    estate   comprising   all   property   formerly

belonging to the debtor.          Property of the estate includes “all

legal or equitable interests of the debtor in property as of the

commencement of the case,”11 as well as “[p]roceeds . . . or profits

of or from property of the estate . . . .”12        IRC § 139813 treats the

bankruptcy estate as a separate entity for tax purposes; the estate

is taxed as if it were the debtor with respect to items of income

to which the estate is entitled.14          Section 1398(f) provides that

a “transfer (other than by sale or exchange) of an asset from the

debtor to the [bankruptcy] estate”15 —— or “from the estate to the

debtor” on termination of the estate16 —— “shall not be treated as

a disposition for purposes of any provision of this title assigning

tax consequences to a disposition . . . .”17

     The district court held that § 1398(f)(2) was inapplicable to

the facts of this case because (1) Susan was a nonfiling spouse



     11
       11 U.S.C. § 541(a)(1). It is pursuant to this provision that title
to the Martin’s unpartitioned community property vested in the bankruptcy
trustee.
     12
          11 U.S.C. § 541 (a)(6).
     13
          26 U.S.C. § 1398.
     14
          In re Kochell, 

, 87 (7th Cir. 1986).
     15
          26 U.S.C. § 1398(f)(1)(emphasis added).
     16
          26 U.S.C. § 1398(f)(2)(emphasis added).
     17
          26 U.S.C. § 1398(f).

                                        6
rather than a “debtor”18; (2) there was no “transfer from the

estate”; and (3) Susan did not receive any “asset” of the estate.

We agree.

      Susan contends, however, that, when all of her and Ken’s

unpartitioned community property was transferred to the bankruptcy

estate, her ownership interest in that property was replaced —— by

operation of law —— with a “claim,” specifically, the right to

receive a distribution from the sale of the Estate’s assets.19                  As

she   was     not   required   to   recognize   any    gain    on   this   initial

transfer, Susan reasons, the government must have been treating her

as a debtor for purposes of § 1398(f)(1).                  Consequently, Susan

concludes, she should also be treated as a debtor for purposes of

§   1398(f)(2),      pertaining     to   transfers    to   a   debtor   from   the

bankruptcy estate.        As a classic flawed syllogism, this argument

fails.

      Susan’s assumption that § 1398(f)(1) applied to the transfer

of her interest in the community property to the Estate is simply

wrong. As the government correctly points out, § 1398(f)(1) merely

states the general rule that a transfer that would otherwise

constitute a taxable disposition is nontaxable when the transferor

is the debtor and the transferee is the estate.                Here, in exchange



      18
       The Bankruptcy Code defines the term “debtor” as a “person or
municipality concerning which a case under this title has been commenced.”
11 U.S.C. § 101(13)
      19
           11 U.S.C. § 726.

                                         7
for her transfer to the Estate, Susan received only the right to a

future distribution; she did not have an “accession to wealth” at

that time. The transfer was not, therefore, a taxable disposition,

even absent the application of § 1398(f)(1).            Hence, the corollary

proposition urged by Susan —— that she must be treated as a debtor

for purposes § 1398(f)(2) —— is baseless.20

     We also conclude that § 1398(f)(2) is inapplicable to the

facts of this case, principally because Susan never received a

transfer of an asset from the Estate on termination of the Estate.

Susan argues that, even though the distribution came from Tenneco

rather than from the bankruptcy trustee, the $5.75 million should

be deemed to have been transferred from the Estate pursuant to the

“origin of    the     claim”    doctrine.    Under   this   doctrine,   Susan

advances, the taxability of income depends on the nature and

character of the claim from which the money is derived.                  She

contends that, in this particular instance, she was entitled to a

tax-free distribution from the Estate, and that the payment from

Tenneco   was,   in     fact,    a   substitute   for   this   distribution.

     20
       If she is not considered a debtor for purposes of § 1398(f)(2),
contends Susan, then this section denies her the equal protection of the
laws by treating filing and nonfiling spouses differently. Susan argues
that she and Ken are similarly situated with respect to their community
property interests, and that to make a distribution to one of them a
nontaxable event while imposing tax on the other would be unconstitutional.
      This argument is without merit. First, unlike Ken, Susan did not
receive a “transfer” of “assets” from the bankruptcy estate on its
“termination.” In addition, unlike Ken, Susan retained a property interest
in the community property even after it was transferred to the bankruptcy
estate. She was, therefore, entitled to protect this interest by filing
a claim against the estate. Consequently, the two are not similarly
situated, and they need not be treated “equally” under the law.

                                        8
Regardless of its immediate source, insists Susan, the payment

should be treated no differently for tax purposes than one made

directly from the Estate.

     We are singularly unpersuaded by this argument. In support of

her “origin of the claim” theory, Susan relies on cases in which

courts have held that proceeds received “in lieu of” otherwise tax-

exempt funds were themselves nontaxable.21         In each of the cases

cited, however, the taxpayer received proceeds from an adverse

party in settlement of an underlying, disputed claim.22            In the

instant case, Susan’s claims were not settled; she sold her claims


     21
       See generally Lyeth v. Hoey, 

(1938)(holding that an
heir who contested his grandmother’s will and who, as a result of a
compromise of that contest, received property from the grandmother’s estate
which he would not have received had the will gone uncontested, acquired
that property “by bequest, devise, or inheritance,” and was therefore not
liable for federal income taxes); Early v. Commissioner, 

(5th
Cir. 1971)(holding that an agreement between taxpayers and heirs of
decedent —— pursuant to which taxpayers received a joint life interest in
income from the trust estate in return for the surrender of stock allegedly
gifted to them by the decedent —— was actually a compromise of the
taxpayers’ disputed right to the stock, and since they claimed the stock
as donees, they were to be treated as having acquired their life estate in
that capacity for federal income tax purposes).
     22
       Susan relies on Estate of Longino v. Commissioner, 

(1959) for the proposition that the origin of the claim doctrine can also
be used to determine the taxability of proceeds received from third
parties. In Longino, the taxpayers’ cotton crop was destroyed through
their use of a pesticide distributed by United Cooperatives, Inc.
Taxpayers filed suit for damages against United and others who had had
anything to do with the product. Taxpayers settled their claim with United
for a payment of $21,087.60 from United’s insurer. Because the insurer
desired to preserve United’s rights against the manufacturer and others,
the settlement was handled by an assignment of taxpayers’ claim in exchange
for the settlement sum. The court held that, because the payment clearly
represented damages for loss of profits —— and not proceeds from a sale ——
the amount was taxable as ordinary income. 

The holding in
Longino is clearly inapposite to the instant case, in which Tenneco paid
Susan $5.75 million for her claims against Ken’s Estate, and not in
settlement of those claims.

                                    9
against Ken’s estate to Tenneco for a $5.75 million payment.                   This

payment did not operate to extinguish her underlying claims against

the Estate; rather, it expressly transferred her claims to Tenneco.

Consequently,          regardless    of   whether    Susan   might   have   thought

subjectively that this payment was in settlement of her claims ——

in   lieu    of    a    tax-free     Estate      distribution   ——   the    fact    is

inescapable that the $5.75 million payment is the proceeds of the

sale of her unextinguished claims. Tenneco merely stepped into her

shoes   as   claimant.         In    essence,      Susan   consciously     chose   to

liquidate an asset —— her claims against the Estate —— by selling

them for cash to a third party rather than retaining her claims and

pursuing them at the risk of recovering less (or nothing) and at

the expense of the time value of the money.

      In addition, because the payment came from Tenneco rather than

from the Estate, Susan obviously did not receive an “asset from the

estate” as required under § 1398(f)(2). And, finally, there is the

element of timing: Susan received the payment from Tenneco almost

a year before distributions of the Estate’s assets were made.

Receipt of the payment prior to termination of the Estate is

another reason why § 1398(f)(2) is not applicable.

      2.     Transfer in Satisfaction of Inchoate Marital Rights

      In the district court, Susan also argued that the $5.75

million was exempt from tax under IRC § 1041.                        Section 1041

provides that property received from a former spouse incident to

divorce is        excluded    from    the   recipient’s      gross   income.       The

                                            10
recipient’s basis is equal to the transferor’s basis, and the

recognition of any gain or loss is deferred until the recipient

transfers the property to a third party.23             The district court

rejected the applicability of § 1041 to the facts of this case, and

Susan does not raise this argument again on appeal, thereby waiving

it.   On appeal, she relies instead on United States v. Davis,24

which governed the transfer of property in satisfaction of marital

rights prior to the 1984 enactment of § 1041.

      The Martins were divorced in 1991. Nevertheless, Susan argues

that “[w]here § 1041 fails to apply and the Code does not provide

substitute       tax   treatment,   the    tax   treatment   presumably   is

determined by common law doctrines —— e.g., the Davis rule and,

potentially, the assignment of income doctrine.”25

      Specifically, Susan asserts that Ken’s filing of a bankruptcy

petition converted her undivided one-half ownership interest in

their community property into an inchoate interest in the Estate.

Susan maintains that Ken had a legal obligation to reimburse her

for her share of the marital assets.         Had the payment come from her

      23
           Arnes v. United States, 

, 458 (9th Cir. 1992).
      24
       Davis involved the transfer of appreciated stock by a husband to his
former wife pursuant to a divorce decree in satisfaction of the wife’s
inchoate marital rights. The Supreme Court held that this transfer was a
taxable event, that the value of the property received by the husband (the
release of the wife’s inchoate marital rights) was equal to the fair market
value of the stock, and that the husband must recognize gain on the
transfer. The Court further held that the market value of the stock should
be taken by the wife as her tax 

.
      25
        Quoting Cindy L. Wofford, “Divorce and Separation,” 515 T.M.
PORTFOLIOS, p. A-21 (BNA 1995).

                                      11
former husband in exchange for the release of this obligation,

contends Susan, then, under Davis, he would be taxed on the gain,

and she would take a basis equal to the face value of the cash

distribution —— $5.75 million.

     In Davis, the Supreme Court assumed “that the parties acted at

arm’s length and that they judged the marital rights to be equal in

value to the property for which they were exchanged.”26    As such,

“the market value of the property transferred by the husband” was

taken by the wife “as her tax basis for the property received.”27

Under the facts of this case, argues Susan, because the only asset

available for distribution was cash, her tax basis is the face

value of the payment she received.    The fact that the payment came

from Tenneco rather than from Ken, insists Susan, should not alter

the tax consequences.

     The district court rejected this argument, and so do we.

Unlike the husband in Davis, Ken never transferred anything to

Susan in discharge of his marital obligation.        Instead, Susan

accepted a cash payment from Tenneco in exchange for her claims

against the Estate, almost a year before any distributions were

made from the trustee and almost two years after her divorce.   Had

she waited for and received a distribution from the Estate, she

might have been entitled to treat such distribution as a nontaxable



     

.
     27
          

                                 12
payment incident to divorce, pursuant to IRC § 1041.             As it stands,

however,    the    transaction   between    Susan      and    Tenneco   can    be

characterized as nothing other than a garden variety sale on which

Susan recognized substantial and immediate gain.

     The government takes the position that Tenneco purchased

Susan’s claims to limit its liability to her under the gas purchase

contract.     The fact that Ken or the Estate ultimately might have

benefitted from this transaction, contends the government, is

irrelevant.       We agree.    Despite Susan’s attempt to convince us

otherwise, the facts that the payment came to her from Tenneco and

not Ken, that her claims were not satisfied or extinguished but

continued to exist in the hands of the purchaser, and that she was

paid long before distributions were made by the Estate, have

everything    to   do   with   the   taxability   of    her    payment.       The

government aptly notes that there is no evidence that Tenneco’s

payment was made at Ken’s behest or that of his bankruptcy trustee,

in exchange for a release of the claims under the gas purchase

contract.     Neither did Tenneco contract to buy Susan’s claims

against the Estate out of any concern for Ken or his marital

property obligations. Susan’s reliance on the Davis rule is wholly

misplaced.

                                      III

                                 CONCLUSION

     Susan has failed to demonstrate that the payment she received


                                      13
from Tenneco was excludable from her gross income either as a

distribution from the Estate under § 1398(f)(2), or in satisfaction

of her inchoate marital rights under Davis. Consequently, she must

recognize gain on that transaction.   And, as Susan has failed to

establish any tax basis in her claims against the Estate, the gain

that she must recognize is on the entire amount of the payment she

received from the sale of these claims to Tenneco.    The district

court did not err in holding the entire $5.75 million taxable and

denying Susan’s claim for a refund of the taxes she paid on the

transaction.   For the foregoing reasons, the judgment of the

district court is, in all respects,

AFFIRMED.




                                14