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Petitioners argue that respondent’s analysis is flawed.
Petitioners invoke several Code provisions which they contend
require a partnership to allocate to a partner in bankruptcy the
portion of his distributive share for the partnership taxable
year which is attributable to the period prior to the
commencement of the partner’s bankruptcy proceeding. We address
these arguments below.
2. Petitioners’ Arguments under Section 1398
a. Section 1398(d)(2)
Petitioners contend that the failure to allocate the
prepetition partnership losses to Mr. Katz individually is
tantamount to forcing a section 1398(d)(2) short taxable year
election upon Mr. Katz with respect to his partnership interests.
Pursuant to section 1398(d)(2), a debtor may elect to divide the
taxable year in which he files bankruptcy into two short years,
the first of which ends on the day prior to the commencement of
the bankruptcy proceeding and the second of which begins on the
bankruptcy commencement date.11 If, however, the debtor declines
11 A debtor’s Federal income tax liabilities attributable
to taxable years which have closed prior to the commencement of
the bankruptcy proceeding are assumed by and collectible from the
bankruptcy estate. See 11 U.S.C. sec. 101(10) (1994) (definition
of “creditor”); id. sec. 502(a) (general rule regarding allowance
of claims against the bankruptcy estate). Accordingly, if the
debtor makes the sec. 1398(d)(2) election, his tax liability for
the first short taxable year becomes an allowable claim against
the bankruptcy estate as a claim arising prior to the bankruptcy
(continued...)
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