Division. He reported total liabilities in the amount of
$84,261,186.38, which he shared in part with various codebtors.
On March 18, 1992, he received a discharge from the Bankruptcy
Court of the total amount of the $84,261,186.38 debt.
Mr. Kahle had an NOL for the taxable year 1990. He did not
make a election pursuant to section 1398(d)(2) to adopt a short
taxable year ending on the date before the commencement date of
the bankruptcy. On their 1991 return, petitioners claimed they
should be allowed to utilize Mr. Kahle's 1990 NOL, a claim which
respondent has disallowed.
Statutory Framework
A bankruptcy estate is created in a voluntary case upon the
filing of the petition of bankruptcy. Bankruptcy Code, 11 U.S.C.
secs. 301, 542 (1978). At that time, certain tax attributes,
including any NOL's, determined as of the first day of the
debtor-taxpayer's taxable year in which the bankruptcy case
commences, become part of the estate, and no longer belong to the
debtor-taxpayer. Sec. 1398(g).
If the debtor-taxpayer makes an election under section
1398(d) to adopt a short taxable year ending on the date before
the commencement of the bankruptcy case, he or she may use an NOL
to reduce his or her income earned during that short taxable
year, and only any unused portion of the NOL becomes part of the
bankruptcy estate. Sec. 1398(d)(2).
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