- 12 - from gross income in the year of discharge under section 108(a). In exchange for this exclusion, certain tax attributes that pass to the debtor from the bankruptcy estate must be reduced by the amount of debt discharged. Sec. 108(b)(2). One such tax attribute is any remaining loss carryforward. Id. Petitioner was discharged in bankruptcy in 1997. Instead of petitioner succeeding to any loss carryforward from the Estate in 1997, respondent argues that any loss carryforward must be reduced dollar for dollar by the amount of debt discharged. We agree. The net operating loss that each of Davidge and Kuma sustained in 1990 flowed through on December 31, 1990, to the Estate, the sole shareholder at both S corporations’ yearend. The Estate carried forward these losses through 1997, the year in which the bankruptcy proceedings terminated. When petitioner was discharged in bankruptcy, any remaining losses in the Estate would have passed to him under section 1398(i). However, the discharged $4 million Citibank loan created COD income that was excluded from petitioner’s gross income under section 108(a). Thus, any loss carryforward--in this case, the loss approximating $3,500,000--otherwise available to petitioner upon the termination of the Estate is reduced dollar for dollar for the excluded COD income under section 108(b)(2). Therefore, any loss carryforward of the Estate to which petitioner succeeded was reduced to zero under section 108(b)(2)(A). Petitioner had no loss in 1997 to recognize in that year or to carry forward to subsequent years.Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Next
Last modified: May 25, 2011