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the net operating loss carryover and carryback
provisions “were enacted to ameliorate the unduly
drastic consequences of taxing income strictly on an
annual basis. They were designed to permit a taxpayer
to set off its lean years against its lush years, and
to strike something like an average taxable income
computed over a period longer than one year.” [United
States v. Foster Lumber Co., 429 U.S. 32, 42 (1976)
(quoting Libson Shops, Inc. v. Koehler, 353 U.S. 382,
386 (1957)).]
The parties agree that if the bankruptcy estate had
terminated in 1994 before the death of Mr. Lassiter, sections 172
and 1398(i) would allow Mr. Lassiter to succeed to the NOLs of
the bankruptcy estate and would allow petitioners to apply those
NOLs on the Lassiters’ 1994 tax return. The parties also
generally agree on the operation of section 1398, which was
enacted as part of the Bankruptcy Tax Act of 1980, Pub. L.
96-589, sec. 3, 94 Stat. 3397. In general, and so far as is
relevant to this case, the operation of section 1398 is
summarized as follows. The filing of a bankruptcy petition under
Chapter 11 creates a new taxable entity, the bankruptcy estate,
that is separate from the debtor. Sec. 1398. The bankruptcy
estate computes its taxable income in the same manner as an
individual does, except that the entity must use the tax rates
applicable to a married individual filing a separate return.
Sec. 1398(c).
Further, the bankruptcy estate succeeds to and takes into
account the individual debtor’s tax attributes (e.g., any NOL
carryforward). Sec. 1398(g). In the case of NOLs, the
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