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The design of the statute is clear. The party holding
the property, whether the debtor or the estate, is also
entitled to any available net operating loss carryover,
so that if that party incurs a taxable gain in the
disposition of the property he can use the net
operating loss carryover to offset the gain. * * *
[Id. at 272.]
The court further reasoned that the intended symmetry of the two
subsections warranted that the phrase “termination of the estate”
should have the same meaning in the context of subsections (f)
and (i) of section 1398. This would satisfy the congressional
intent to place net operating loss deductions with the party that
recognizes the gain upon the disposition of the property.9
The interpretation that subsections (f) and (i) of section
1398 were intended to cause tax losses to vest with the party
recognizing gain on the disposition of property is a reasonable
one. As previously explained, in the context of section 1398,
9 Under sec. 1398, the tax attributes (net operating losses)
follow the assets of the debtor and the debtor’s bankruptcy
estate. Those parties are expressly contemplated within the
context of sec. 1398 and, in particular, subsecs. (f), (g), and
(i). The use of the debtor’s or the estate’s tax attributes is a
limited one and does not extend to unrelated third parties.
Congress specifically provided that the bankruptcy estate
succeeds to the debtor’s tax attributes and that those attributes
return to the debtor upon the termination of the estate. Other
entities that may be connected with the bankruptcy estate, such
as a liquidating trust for the benefit of creditors, have been
found to be separate or unrelated entities for purpose of
taxation. See Holywell Corp. v. Smith, 503 U.S. 47 (1992).
Accordingly, when petitioner’s bankruptcy estate assets were
transferred to the liquidating trust for the benefit of
creditors, it was not contemplated that the creditors or the
trust for their benefit would succeed to the tax attributes of
petitioner/debtor or his estate.
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