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In these cases, by operation of bankruptcy law, the shares
of Davidge and Kuma became property of the Estate when petitioner
filed his bankruptcy petition on December 3, 1990. Before that
date, none of the loss generated by Davidge or Kuma during 1990
was distributable to petitioner. The Estate held the shares on
December 31, 1990, the taxable yearend for both corporations.
There was no taxable disposition, and the Estate is treated as
petitioner would have been treated with respect to the shares of
Davidge and Kuma under section 1398(f)(1). Thus, the
corporations’ losses flowed through to the Estate rather than to
petitioner.
We next address petitioner’s argument that, because
subsection (g)(1) is the only subsection of section 1398 that
deals specifically with losses, section 1398(g)(1) controls to
entitle petitioner to the losses generated during the year in
which he filed for bankruptcy. Petitioner reasons that the
Estate succeeds solely to the debtor’s net operating loss
carryovers under section 172 “determined as of the first day of
the debtor’s taxable year in which the case commences”. Sec.
1398(g). By focusing on the language “determined as of the first
day of the debtor’s taxable year in which the case commences” in
section 1398(g)(1), petitioner argues that the Estate does not
succeed to any loss Davidge or Kuma generated during the year in
which petitioner filed bankruptcy.
Petitioner misconstrues section 1398(g)(1). While section
1398(g)(1) deals with losses, it deals only with carryover losses
(i.e., losses generated before the year in which the individual
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