Allen C. Chamberlin and Martha L. Chamberlin - Page 21

                                       - 21 -                                         

          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.            

Page:  Previous  11  12  13  14  15  16  17  18  19  20  21  22  23  24  25  26  27  28  29  30  Next

Last modified: May 25, 2011