§1398 — Rules relating to individuals’ title 11 cases
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Statute Text — 26 U.S.C. §1398
Except as provided in subsection (b), this section shall apply to any case under chapter 7 (relating to liquidations) or chapter 11 (relating to reorganizations) of title 11 of the United States Code in which the debtor is an individual.
This section shall not apply if the case under chapter 7 or 11 of title 11 of the United States Code is dismissed.
For purposes of subsection (a), a partnership shall not be treated as an individual, but the interest in a partnership of a debtor who is an individual shall be taken into account under this section in the same manner as any other interest of the debtor.
Except as otherwise provided in this section, the taxable income of the estate shall be computed in the same manner as for an individual. The tax shall be computed on such taxable income and shall be paid by the trustee.
The tax on the taxable income of the estate shall be determined under subsection (d) of section 1.
In the case of an estate which does not itemize deductions, the basic standard deduction for the estate for the taxable year shall be the same as for a married individual filing a separate return for such year.
Except as provided in paragraph (2), the taxable year of the debtor shall be determined without regard to the case under title 11 of the United States Code to which this section applies.
Notwithstanding section 442, the debtor may (without the approval of the Secretary) elect to treat the debtor’s taxable year which includes the commencement date as 2 taxable years—
the first of which ends on the day before the commencement date, and
the second of which begins on the commencement date.
In the case of a married individual (within the meaning of section 7703), the spouse may elect to have the debtor’s election under subparagraph (A) also apply to the spouse, but only if the debtor and the spouse file a joint return for the taxable year referred to in subparagraph (A)(i).
No election may be made under subparagraph (A) by a debtor who has no assets other than property which the debtor may treat as exempt property under section 522 of title 11 of the United States Code.
An election under subparagraph (A) or (B) may be made only on or before the due date for filing the return for the taxable year referred to in subparagraph (A)(i). Any such election, once made, shall be irrevocable.
A return shall be made for each of the taxable years specified in subparagraph (A).
For purposes of subsections (b), (c), and (d) of section 443, a return filed for either of the taxable years referred to in subparagraph (A) shall be treated as a return made under paragraph (1) of subsection (a) of section 443.
For purposes of this subsection, the term “commencement date” means the day on which the case under title 11 of the United States Code to which this section applies commences.
The gross income of the estate for each taxable year shall include the gross income of the debtor to which the estate is entitled under title 11 of the United States Code. The preceding sentence shall not apply to any amount received or accrued by the debtor before the commencement date (as defined in subsection (d)(3)).
The gross income of the debtor for any taxable year shall not include any item to the extent that such item is included in the gross income of the estate by reason of paragraph (1).
Except as otherwise provided in this section, the determination of whether or not any amount paid or incurred by the estate—
is allowable as a deduction or credit under this chapter, or
is wages for purposes of subtitle C,
shall be made as if the amount were paid or incurred by the debtor and as if the debtor were still engaged in the trades and businesses, and in the activities, the debtor was engaged in before the commencement of the case.
A transfer (other than by sale or exchange) of an asset from the debtor to the estate shall not be treated as a disposition for purposes of any provision of this title assigning tax consequences to a disposition, and the estate shall be treated as the debtor would be treated with respect to such asset.
In the case of a termination of the estate, a transfer (other than by sale or exchange) of an asset from the estate to the debtor shall not be treated as a disposition for purposes of any provision of this title assigning tax consequences to a disposition, and the debtor shall be treated as the estate would be treated with respect to such asset.
The estate shall succeed to and take into account the following items (determined as of the first day of the debtor’s taxable year in which the case commences) of the debtor—
The net operating loss carryovers determined under section 172.
The carryover of excess charitable contributions determined under section 170(d)(1).
Any amount to which section 111 (relating to recovery of tax benefit items) applies.
The carryovers of any credit, and all other items which, but for the commencement of the case, would be required to be taken into account by the debtor with respect to any credit.
The capital loss carryover determined under section 1212.
In the case of any asset acquired (other than by sale or exchange) by the estate from the debtor, the basis, holding period, and character it had in the hands of the debtor.
The method of accounting used by the debtor.
Other tax attributes of the debtor, to the extent provided in regulations prescribed by the Secretary as necessary or appropriate to carry out the purposes of this section.
Any administrative expense allowed under section 503 of title 11 of the United States Code, and any fee or charge assessed against the estate under chapter 123 of title 28 of the United States Code, to the extent not disallowed under any other provision of this title, shall be allowed as a deduction.
There shall be allowed as a deduction for the taxable year an amount equal to the aggregate of (i) the administrative expense carryovers to such year, plus (ii) the administrative expense carrybacks to such year.
If a net operating loss would be created or increased for any estate taxable year if section 172(c) were applied without the modification contained in paragraph (4) of section 172(d), then the amount of the net operating loss so created (or the amount of the increase in the net operating loss) shall be an administrative expense loss for such taxable year which shall be an administrative expense carryback to each of the 3 preceding taxable years and an administrative expense carryover to each of the 7 succeeding taxable years.
The portion of any administrative expense loss which may be carried to any other taxable year shall be determined under section 172(b)(2), except that for each taxable year the computation under section 172(b)(2) with respect to the net operating loss shall be made before the computation under this paragraph.
The deductions allowable under this chapter solely by reason of paragraph (1), and the deduction provided by subparagraph (A) of this paragraph, shall be allowable only to the estate.
In the case of a termination of an estate, the debtor shall succeed to and take into account the items referred to in paragraphs (1), (2), (3), (4), (5), and (6) of subsection (g) in a manner similar to that provided in such paragraphs (but taking into account that the transfer is from the estate to the debtor instead of from the debtor to the estate). In addition, the debtor shall succeed to and take into account the other tax attributes of the estate, to the extent provided in regulations prescribed by the Secretary as necessary or appropriate to carry out the purposes of this section.
Notwithstanding section 442, the estate may change its annual accounting period one time without the approval of the Secretary.
If any carryback year of the estate is a taxable year before the estate’s first taxable year, the carryback to such carryback year shall be taken into account for the debtor’s taxable year corresponding to the carryback year.
The debtor may not carry back to a taxable year before the debtor’s taxable year in which the case commences any carryback from a taxable year ending after the case commences.
For purposes of this paragraph—
The term “carryback” means a net operating loss carryback under section 172 or a carryback of any credit provided by part IV of subchapter A.
The term “carryback year” means the taxable year to which a carryback is carried.
Treasury Regulations
- Treas. Reg. §Treas. Reg. §1.1398-1 Treatment of passive activity losses and passive activity credits in individuals' title 11 cases
- Treas. Reg. §Treas. Reg. §1.1398-1(a) Scope.
- Treas. Reg. §Treas. Reg. §1.1398-1(b) Definitions and rules of general application.
- Treas. Reg. §Treas. Reg. §1.1398-1(c) Estate succeeds to losses and credits upon commencement of case.
- Treas. Reg. §Treas. Reg. §1.1398-1(d) Transfers from estate to debtor—(1) Transfer not treated as taxable event.
- Treas. Reg. §Treas. Reg. §1.1398-1(e) Debtor succeeds to loss and credit of the estate upon its termination.
- Treas. Reg. §Treas. Reg. §1.1398-1(f) Effective date—(1) Cases commencing on or after November 9, 1992.
- Treas. Reg. §Treas. Reg. §1.1398-1(i) The estate must allocate to the transferred interest, in accordance with § 1.
- Treas. Reg. §Treas. Reg. §1.1398-1(v) Manner of making election—(A) Chapter 7 cases.
- Treas. Reg. §Treas. Reg. §1.1398-2 Treatment of section 465 losses in individuals' title 11 cases
- Treas. Reg. §Treas. Reg. §1.1398-2(a) Scope.
- Treas. Reg. §Treas. Reg. §1.1398-2(b) Definition and rules of general application.
- Treas. Reg. §Treas. Reg. §1.1398-2(c) Estate succeeds to losses upon commencement of case.
- Treas. Reg. §Treas. Reg. §1.1398-2(d) Transfers from estate to debtor—(1) Transfer not treated as taxable event.
- Treas. Reg. §Treas. Reg. §1.1398-2(e) Debtor succeeds to losses of the estate upon its termination.
- Treas. Reg. §Treas. Reg. §1.1398-2(f) Effective date—(1) Cases commencing on or after November 9, 1992.
- Treas. Reg. §Treas. Reg. §1.1398-2(v) Manner of making election—(A) Chapter 7 cases.
- Treas. Reg. §Treas. Reg. §1.1398-3 Treatment of section 121 exclusion in individuals' title 11 cases
- Treas. Reg. §Treas. Reg. §1.1398-3(a) Scope.
- Treas. Reg. §Treas. Reg. §1.1398-3(b) Definition and rules of general application.
- Treas. Reg. §Treas. Reg. §1.1398-3(c) Estate succeeds to exclusion upon commencement of case.
- Treas. Reg. §Treas. Reg. §1.1398-3(d) Effective date.
26 Citing Cases
See § 1398. Section 1398 does not apply to corporations.
The holding in In re Emerson is readily distinguishable from the holdings in numerous cases that have held that a “termination” occurs at the point of confirmation.
Section 1399 provides: “Except in any case to which section 1398 applies, no separate taxable entity shall result from the commencement of a case under title 11 of the United States Code.” Section 1398 is inapplicable since it applies exclusively to individuals.
We hold that Charles Sisson is liable.
that petitioner acquired an interest in the MCLT from his bankruptcy estate pursuant to section 1398(i).
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.
The bankruptcy estate computes its taxable income in the same manner as an individual does, except that the entity must use the tax rates applicable to a married individual filing a separate return. Sec. 1398(c). Further, the bankruptcy estate succeeds to and takes into account the individual debtor’s tax attributes (e.g., any NOL [net o
Section 1399 provides: “Except in any case to which section 1398 applies, no separate taxable entity shall result from the commencement of a case under title 11 of the United States Code.” Section 1398 is inapplicable since it applies exclusively to individuals.
The parties also generally agree on the operation of section 1398, which was enacted as part of the Bankruptcy Tax Act of 1980, Pub.
1398.6 The estate succeeds to all legal and equitable interests of the debtor in property, as well as certain tax attributes of the debtor. See 11 U.S.C. sec. 541(a)(1); sec. 1398(g). The estate computes its tax liability in the same manner as a married individual filing a separate return, see sec. 1398(c), and the chapter 7 trustee is responsible for filing tax returns throughout the duration of the bankruptcy proceeding, see sec. 6012(b)(4); see also 11 U.S.C. sec. 704(8) (1994). b. Allocation
relating to the bankruptcy of an individual debtor. When an individual files a chapter 7 petition in bankruptcy, a bankruptcy estate is created as a separate entity for purposes of both bankruptcy law and tax law. See 11 U.S.C. sec. 541(a) (1994); sec. 1398.6 The estate succeeds to all legal and equitable interests of the debtor in property, as well as certain tax attributes of the debtor. See 11 U.S.C. sec. 541(a)(1); sec. 1398(g). The estate computes its tax liability in the same manner as a
relating to the bankruptcy of an individual debtor. When an individual files a chapter 7 petition in bankruptcy, a bankruptcy estate is created as a separate entity for purposes of both bankruptcy law and tax law. See 11 U.S.C. sec. 541(a) (1994); sec. 1398.6 The estate succeeds to all legal and equitable interests of the debtor in property, as well as certain tax attributes of the debtor. See 11 U.S.C. sec. 541(a)(1); sec. 1398(g). The estate computes its tax liability in the same manner as a
3389, Congress clarified this.area of the law and enacted section 1398, which directly addresses the tax implications of bankruptcy.
Alleged Abandonment of the Vernon Property Respondent contends that the Vernon property is treated for Federal income tax purposes as the property of petitioner’s bankruptcy estate (the bankruptcy estate) upon the commencement of the bankruptcy case pursuant to section 1398 and, consequently, that petitioners did not realize a loss upon any disposition of the Vernon property by the bankruptcy estate in 2000.
NOL’s Section 1398 applies to this case because petitioner is an individual who was a debtor in a proceeding under chapter 7 of the U.S. Bankruptcy Code. See sec. 1398(a). Section 1398 provides that a debtor’s bankruptcy estate succeeds to the debtor’s NOL carryovers and that the debtor succeeds to the NOL carryovers which remain when the bankruptcy esta
NOL’s Section 1398 applies to this case because petitioner is an individual who was a debtor in a proceeding under chapter 7 of the U.S. Bankruptcy Code. See sec. 1398(a). Section 1398 provides that a debtor’s bankruptcy estate succeeds to the debtor’s NOL carryovers and that the debtor succeeds to the NOL carryovers which remain when the bankruptcy esta
Section 1398 Section 1398 applies to any case under chapter 7 or 11 of title 11 of the United States Code in which the debtor is an individual. Sec. 1398(a). Since petitioner is a debtor in a chapter 7 bankruptcy proceeding, section 1398 applies in the instant case. - 9 - Section 1398 provides that the bankruptcy estate of the debtor succeeds to,
etition for reliefunder chapter 11 ofthe Bankruptcy Code, see Zaklama v. Commissioner, T.C. Memo. 1995-587, the filing ofthe petition did not eliminate petitioners' responsibility to file timely Federal income tax returns on behalfofthemselves, see sec. 1398 (providing that an individual debtor and his or her bankruptcy estate are separate taxable entities); Olsen v. Commissioner, T.C. Memo. 1995-319; see also United States v. Boyle, 469 U.S. 241 (1985) (stating that the responsibility to file a
etition for reliefunder chapter 11 ofthe Bankruptcy Code, see Zaklama v. Commissioner, T.C. Memo. 1995-587, the filing ofthe petition did not eliminate petitioners' responsibility to file timely Federal income tax returns on behalfofthemselves, see sec. 1398 (providing that an individual debtor and his or her bankruptcy estate are separate taxable entities); Olsen v. Commissioner, T.C. Memo. 1995-319; see also United States v. Boyle, 469 U.S. 241 (1985) (stating that the responsibility to file a
1398.3 The estate comprises all legal and equitable interests of the debtor in property. See 11 U.S.C. sec. 541.4 Petitioner argues that his residence was effectively abandoned by the estate when the bankruptcy court granted Wells Fargo’s motion for a relief from stay. Both parties agree that the disposition of property abandoned by a trustee