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estate survived 1985, it is not necessary for us to determine
their character.
Section 1398(g), however, prevents certain attributes from
passing from a taxpayer to the bankruptcy estate. The $450,000
loss of funds borrowed from Freedom Federal and reloaned to The
Chamberlin Corp., recognizable by petitioners in 1985, was a bad
debt under section 166 at the time of the filing of the personal
chapter 11 petition in bankruptcy. A section 166 deduction is
not specifically mentioned in section 1398(g) as being an
attribute that becomes part of the estate. Because petitioners
did not make a section 1398(d)(2) election to split 1985 into 2
taxable years, the section 166 deduction did not become part of
an NOL upon the filing of the petition in bankruptcy. Section
1398(g) thus preserves the section 166 deduction for the debtor.
The $450,000 loss was recognizable by petitioners on their 1985
tax return, and any unused portion became a carryover NOL or
capital loss belonging to petitioners and is available for use by
petitioners as an offset of taxable income in later years.
Character of the $450,000 Loss
Whether the $450,000 loss was a business bad debt under
section 166(a)(1) or a nonbusiness bad debt under section
166(d)(2) depends on whether petitioner was engaged in a trade or
business with respect to his endeavors with The Chamberlin Corp.
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