Bankruptcy estate can't use bankrupt's passive losses.
IRC section 1398 lists the debtor's tax attributes to which the bankruptcy estate succeeds, including net operating losses, capital loss carryovers and others, but not unused PALs. The statute says other attributes also are included "to the extent provided in regulations." The Treasury at that time had not issued regulations including PALs in the list of tax attributes.
Result: Against the creditors. The District Court said that since passive losses are not on the list, the court has no authority under the plain language of the statute to include them among the tax attributes. Therefore, the unused PALs cannot be used to reduce tax.
Note: The IRS has issued a proposed regulation (section 1.1398-1) allowing a bankruptcy estate to succeed to the debtor's unused PALs. However, that regulation generally would be effective for petitions filed after November 8, 1992; for petitions filed earlier, the regulation would apply only on the joint election of the debtor and the estate.
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|Publication:||Journal of Accountancy|
|Article Type:||Brief Article|
|Date:||Mar 1, 1993|
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