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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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