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Section of Taxation, “Report of the Section 108 Real Estate and
Partnership Task Force: Part II”, 46 Tax Law. 397, 448-449 (1993)
(concluding that “when an individual files bankruptcy prior to
the close of the partnership’s taxable year, his bankruptcy
estate would get the benefit or detriment of the partnership
income or loss for the entire year” and noting that “the section
1398(d) short period election to treat the debtor’s taxable year
of bankruptcy filing as two taxable years would not affect the
result”). As petitioners’ argument rests upon a faulty
assumption, we reject it.
b. Section 1398(b)(2)
Petitioners note that section 1398(b)(2) provides that “the
interest in a partnership of a debtor who is an individual shall
be taken into account under this section in the same manner as
any other interest of the debtor.” Petitioners then contend
that, since income or loss received during the prepetition period
on property other than a partnership interest was taxable to Mr.
Katz individually under section 1398(e), section 1398(b)(2)
mandates that the portion of the partnership income or loss
attributable to the prepetition period must also be allocated to
Mr. Katz in his individual capacity.
Petitioners read section 1398(b)(2) out of context. Section
1398(b)(2) provides as follows:
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