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files for bankruptcy, not losses generated during the year in
which the individual files for bankruptcy). The losses at issue
here are losses generated during the year in which petitioner
filed for bankruptcy.
For all the foregoing reasons, we hold that the Estate is
entitled to report the losses Davidge and Kuma generated during
the year in which petitioner filed for bankruptcy. Accordingly,
we sustain respondent’s determination in the notices of
deficiency disallowing petitioner’s losses from Davidge and Kuma
in 1990.
II. The Loss Carryforward After Discharge
We turn next to the issue whether petitioner is entitled to
report carryforward losses. We begin with some fundamental
principles. First, a bankruptcy estate can offset income it
generates during bankruptcy with any of the debtor’s operating
losses to which it succeeds. See secs. 1398(e)(1) and (f)(1),
172(b)(2). Second, any loss the bankruptcy estate does not use
in one year can be carried forward to offset income the
bankruptcy estate generates in future years until termination of
the estate or until the entire loss is expended or expires. Sec.
172(b)(2). Third, if a loss carryforward remains after the
termination of the bankruptcy estate, the discharged debtor
succeeds to the assets and tax attributes of the bankruptcy
estate, including loss carryforwards. Sec. 1398(i).
While normally discharge of indebtedness income is taxable
under section 61(a)(12), cancellation of indebtedness (COD)
income realized as a result of a bankruptcy discharge is excluded
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