Oren L. Benton - Page 25

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          pursuant to section 346(g)(1) of the Bankruptcy Code.  As a                 
          result, the transaction would be a taxable event to the debtor.             
               The holding in In re McGowan, supra at 107, depended upon              
          the definition of the phrase “termination of an estate”.  If the            
          estate had terminated as of the date of the abandonment, then the           
          transaction would have qualified under section 1398(f)(2) as a              
          transfer of assets, nontaxable to the estate.  Otherwise, the               
          transaction would have been a taxable disposition to the estate.            
          The bankruptcy court recognized, as we have, that the phrase                
          “termination of the estate” is susceptible of differing                     
          definitions.  That court held that the definition of “termination           
          of the estate”, within the context of section 1398(f)(2),                   
          included the termination of the estate’s interest in property,              
          including the abandonment of property.                                      
               The effect of that holding was to place the tax liability on           
          the debtor.  The court reasoned that it had                                 
               difficulty with the notion that the mere act of                        
               abandoning burdensome property creates tax liability                   
               for the trustee.  The effect of such a rule could be to                
               place the burden of any taxes arising from such                        
               “dispositions” upon the unencumbered assets which might                
               otherwise be distributed to unsecured creditors.  [Id.                 
               at 108.]                                                               
          While the bankruptcy court was concerned that the burden of the             
          tax liability on the debtor could inhibit the debtor’s fresh                
          start, in those circumstances, the interests of the creditors               
          were considered to be of higher priority.                                   

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Last modified: May 25, 2011