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estate”. Petitioner contends that, in the context of his chapter
11 bankruptcy reorganization, the estate terminated at the time
of the confirmation of the plan of reorganization and discharge
of the debtor.3 Respondent contends that the bankruptcy estate
does not terminate until the bankruptcy proceeding is formally
closed.4 We must resolve this threshold question before
considering whether petitioner is entitled to use certain net
operating loss deductions from the bankruptcy estate.
The relationship, for Federal tax purposes, between a
bankrupt and a chapter 11 bankruptcy estate has been described as
follows:
The filing of a bankruptcy petition under Chapter 11
creates a new taxable entity, the bankruptcy estate,
that is separate from the debtor. Sec. 1398. The
bankruptcy estate computes its taxable income in the
same manner as an individual does, except that the
entity must use the tax rates applicable to a married
individual filing a separate return. Sec. 1398(c).
Further, the bankruptcy estate succeeds to and
takes into account the individual debtor’s tax
attributes (e.g., any NOL [net operating loss]
3 Our consideration of the issues in this case is limited to
the effect of sec. 1398 in the context of an individual ch. 11
bankruptcy reorganization.
4 We note that at the time of the filing of the motion for
summary judgment, the bankruptcy court had not entered a final
order closing petitioner’s ch. 11 proceeding. If we were to hold
that the closing of the bankruptcy proceeding was the time of
“termination”, the bankruptcy estate’s tax attributes would not
transfer to petitioner until the closing of the estate. That
could create a situation where petitioner would not be able to
use the tax attributes even though the bankruptcy estate no
longer controlled the assets or needed the tax attributes.
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Last modified: May 25, 2011