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(2) Section does not apply at partnership
level.–-For purposes of subsection (a), a partnership
shall not be treated as an individual, but 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. [Emphasis
added.]
When read in conjunction with section 1398(a) (providing that
section 1398 applies only to certain bankruptcy proceedings in
which the debtor is an individual), the purpose of the first
portion of section 1398(b)(2) is to render section 1398
inapplicable to a partnership in bankruptcy. The second portion
of section 1398 (upon which petitioners base their argument) is
properly interpreted as a clarification that even though section
1398 does not apply to a partnership in bankruptcy, it
nonetheless governs the tax treatment of a partnership interest
of an individual in bankruptcy. Section 1398(b)(2) is thus not
intended to articulate a specific manner in which the income or
loss from a partnership interest is to be divided between a
partner and his bankruptcy estate. Rather, such specifics are
addressed in section 1398(e). Petitioners’ reliance upon section
1398(b)(2) is misplaced.
3. Petitioners’ Argument Under Section 706(d)(1)
Section 706(a) provides that the distributive share of
income or loss for the entire partnership taxable year is deemed
to be distributed to the holder of the partnership interest as of
the close of the partnership taxable year. Given that Mr. Katz’
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