Lawrence G. Williams - Page 6

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          Petitioner timely filed petitions with this Court contesting                
          respondent’s disallowance of the losses and liability for the               
          accuracy-related penalty for each year at issue.                            
               Petitioner received a discharge in bankruptcy on November              
          26, 1997.  The $4 million Citibank loan was discharged.                     
                                       OPINION                                        
          I.   Whether Petitioner or the Bankruptcy Estate Is Entitled to             
               the 1990 Losses                                                        
               The Bankruptcy Tax Act of 1980, Pub. L. 96-589, sec. 3, 94             
          Stat. 3397, added section 1398 to eliminate uncertainty and                 
          litigation by detailing how Federal income tax attributes and               
          liabilities are to be allocated between the bankruptcy estate and           
          the individual debtor.  See sec. 1398; see also S. Rept. 96-1035,           
          at 8-13 (1980), 1980-2 C.B. 620, 623-626.  Filing a bankruptcy              
          petition creates a new taxable entity for Federal tax purposes,             
          the bankruptcy estate, which is a separate and distinct taxpayer            
          from the individual debtor.  See 11 U.S.C. sec. 541(a) (2000);              
          sec. 1398.  The debtor continues as a separate taxable entity               
          during the pendency of the bankruptcy proceeding.  Sec. 1398.               
          Section 1398 dictates whether the bankruptcy estate or the                  
          individual debtor reports income, deductions, and credits and               
          when either taxpayer succeeds to the tax attributes of the other.           
               This is a case of first impression in which we must decide             
          whether filing individual bankruptcy alters the rules that                  
          otherwise apply under subchapter S regarding the allocation and             
          deductibility by an individual shareholder of losses of S                   
          corporations incurred in the calendar year in which the                     
          individual shareholder files for bankruptcy.                                





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