                      122 T.C. No. 20



                UNITED STATES TAX COURT



             OREN L. BENTON, Petitioner v.
     COMMISSIONER OF INTERNAL REVENUE, Respondent



Docket No. 7602-02.               Filed May 12, 2004.



     P’s ch. 11 bankruptcy commenced in 1995, and he
was discharged upon the confirmation of his plan of
reorganization during 1997. Effectively, at the time
of confirmation, all of the estate’s assets were
transferred to a liquidating trust for the benefit of
creditors. P had net operating losses (NOLs) that
arose in years prior to the bankruptcy commencement.
P’s bankruptcy estate also incurred tax losses. The
bankruptcy estate succeeded to P’s precommencement
NOLs. Under sec. 1398(i), I.R.C., P would succeed to
the tax attributes (NOLs) of the bankruptcy estate,
upon its termination. P contends that his ch. 11
bankruptcy terminated upon the confirmation of the plan
and the discharge of the debtor. R contends that a ch.
11 bankruptcy does not terminate until closed by a
final order of a bankruptcy court.
                                 - 2 -

          P seeks to apply NOLs to his 1995, 1996, and 1997
     income which was not includable in the bankruptcy
     estate. R contends that P may not carry NOLs to any
     years prior to the termination of P’s bankruptcy
     estate; i.e., 1996 or 1995.
          1. Held: The “termination” of P’s ch. 11
     bankruptcy, for purposes of sec. 1398, I.R.C., occurred
     upon the confirmation of the plan and discharge of the
     debtor.
          2. Held, further, P may use NOLs with respect to
     his separate tax reporting in the year of the
     commencement of his bankruptcy and later years, to the
     extent allowed under sec. 172, I.R.C., and the
     regulations thereunder.



     Oren L. Benton, pro se.

     Frederick J. Lockhart, Jr., and John A. Weeda, for

respondent.


                                OPINION


     GERBER, Judge:   Respondent determined deficiencies in

petitioner’s Federal income taxes, an addition to tax, and

penalties for the short taxable year of February 23 through

December 31, 1995, and the taxable years 1996 and 1997, as

follows:

                                                   Accuracy-
                               Addition to Tax   Related Penalty
     Year     Deficiency       Sec. 6651(a)(1)      Sec. 6662

     19951     $75,771               --             $15,154
     1996      240,565               --              48,113
     1997      249,337             $57,967           46,374
     1
       Pursuant to sec. 1398(d)(2)(D), petitioner elected to
terminate his taxable year as of the bankruptcy commencement
date, Feb. 23, 1995. The deficiency is with respect to the short
tax year of Feb. 23 through Dec. 31, 1995.
                                 - 3 -

     This matter is before the Court on respondent’s motion for

partial summary judgment.    See Rule 121.1    The issues presented

for our consideration are:    (1) Whether petitioner succeeded to

the tax attributes of his chapter 11 bankruptcy estate at the

time of confirmation of the plan of reorganization or,

alternatively, upon entry of a final order closing the bankruptcy

proceeding, see sec. 1398(i); (2) whether petitioner may carry

net operating losses (NOLs) to his 1995, 1996, and 1997 tax

years; and (3) whether certain payments petitioner received were

compensation for his services.

                             Background

     Petitioner resided in Oto, Iowa, at the time his petition

was filed in this proceeding.    On February 23, 1995, petitioner

filed a voluntary petition with the U.S. Bankruptcy Court for the

District of Colorado under chapter 11 of the Bankruptcy Code.

Concurrently, four related petitions were filed for business

entities controlled by petitioner.       An additional entity

controlled by petitioner filed a petition under chapter 11 during

1996.    All six bankruptcy cases were administered as a related

group.    A separate bankruptcy estate was established for each

entity, including the Oren L. Benton Bankruptcy Estate (Benton



     1
       Unless otherwise indicated, all Rule references are to the
Tax Court Rules of Practice and Procedure, and all section
references are to the Internal Revenue Code in effect for the
taxable years at issue.
                                - 4 -

estate) and the Nuexco Trading Corp. Bankruptcy Estate (NTC

bankruptcy estate).   As of the date of each petition, the

entity’s assets became assets of its bankruptcy estate.   Pursuant

to section 1398(d)(2)(D), petitioner elected to terminate his

taxable year as of February 23, 1995.   A separate Federal income

tax return was filed for petitioner’s short taxable year February

23 through December 31, 1995.

     Among the assets that made up the Benton estate were

petitioner’s interests in three entities that were involved in

the operation and ownership of the Colorado Rockies National

League Baseball Franchise.   The three interests included a

limited partnership interest in the Colorado Baseball Club

Limited Partnership (CBCLP), which was the owner of the National

League franchise.   In addition, Colorado Baseball Management,

Inc. (CBM), was a corporation entitled to a percentage of the

gross revenues of CBCLP.   Lastly, Colorado Baseball, Inc. (CBI),

was the managing general partner in CBCLP.

     A second amended plan of reorganization (the plan), dated

August 18, 1997, for petitioner and his related bankruptcy

estates was to be effective on August 31, 1997.   Until the August

18, 1997, confirmation of the plan, petitioner served as the

debtor in possession.   Among other things, the plan provided that

on August 31, 1997, most of the various bankruptcy estates’

assets would be transferred into a liquidating trust to be
                              - 5 -

administered for the benefit of creditors by a trustee.    The

trustee was responsible for all tax matters relating to the

estates subject to the supervision of an oversight committee.

The creditors agreed in the plan that the tax attributes would go

to the debtor (petitioner) upon confirmation of the plan.

     The plan also provided that the interest in CBCLP was to be

placed in the NTC bankruptcy estate, and the CBM and CBI

interests were to remain in the Benton estate.   The motivation

for not transferring these assets to the liquidating trust was to

maintain the S corporation status of CBM and CBI.   This limited

exception to the general transfer of assets to the liquidating

trust was approved by the Benton estate’s creditors and promoted

by Benton’s fellow S corporation shareholders.   Those

shareholders were concerned about whether the placement of an

interest in an S corporation into a bankruptcy liquidating trust

would result in the termination of S corporation status.    Their

concern was focused upon whether a liquidating trust and/or

liquidating trustee would be a qualified shareholder of an S

corporation.2




     2
       We note that sec. 1361(b)(1)(B) and (c)(3) permits the
estate of an individual in bankruptcy to become a shareholder of
an S corporation without triggering termination of S corporation
status. Cf. Mourad v. Commissioner, 121 T.C. 1 (2003). We
surmise that the shareholders were concerned about S corporation
status in the event that the stock were transferred from the
bankruptcy estate to the liquidating trust.
                               - 6 -

     The Benton estate retained bare legal title to the interests

in CBI and CBM with no rights of ownership.   The plan included

the following terms, which in effect made the Benton estate a

mere nominee:

     i) the Liquidating Trustee shall be deemed to hold an
     irrevocable proxy and power of attorney to act on the
     Benton Estate’s behalf with respect to the Baseball
     Interests or any of them;

     ii) * * * [the Baseball Interests] shall be deemed
     ordered * * * to pay over all payments on account of
     the Baseball Interests as the Liquidating Trustee shall
     direct;

     iii) the Benton Estate shall not sell, encumber, or
     otherwise dispose of any interest in the Baseball
     Interests without the express prior written consent of
     the Liquidating Trustee. To the extent required to
     effectuate the purposes of this section, the
     Liquidating Trustee shall be deemed the representative
     of the Estates in regard to the administration of the
     Baseball Interests.

     On September 1, 1997, the first day following the effective

date of the plan, petitioner was discharged under the provisions

of Bankruptcy Code section 1141(d) from any debt that arose

before confirmation, and he was relieved of his status as

“debtor-in-possession”.

     On his 1997 Federal income tax return, petitioner claimed

approximately $84 million in NOLs that had arisen before the

commencement of the bankruptcy and had not been used by his

bankruptcy estate.   Petitioner contended that he received the

NOLs from his bankruptcy estate as of August 31, 1997, the

effective date of the confirmed plan.   During April 1999
                                - 7 -

petitioner filed a Form 1040X, Amended U.S. Individual Income Tax

Return, for the short taxable year 1995 and the calendar year

1996, attempting to use NOLs initially reported on his 1997

return.   During October 2001, petitioner filed amended returns

containing $59 million in increased claims for NOLs.

     Petitioner received the following amounts from CBM during

his taxable years ended December 31, 1995, 1996, and 1997:

              Taxable
               Year                     Amount

               1995                  $200,000
               1996                 1,000,000
               1997                   925,000
               1997                    60,000

Petitioner reported the amounts received in 1995 and 1996 as

wages on his Forms 1040, U.S. Individual Income Tax Return.    He

did not, however, report as income the amounts he received during

1997 on his original 1997 return.   Instead, petitioner attached a

statement to his 1997 return asserting that the amounts he

received from CBM in 1997 belonged to the Benton estate and were

loans from the estate to him.   On the statement, he also

maintained that the Benton estate was challenging the

characterization of the payments as compensation, asserting that

they were payments with respect to the stock.    Petitioner, in

amended returns for 1995 and 1996, included statements similar to

those included on his 1997 return, asserting that the payments

were erroneously included as compensation and should be properly

characterized as loans from the Benton estate.
                                 - 8 -

                              Discussion

I.    Summary Judgment

       Respondent moved for partial summary judgment with respect

to three issues in this case.    Summary judgment is intended to

expedite litigation and avoid unnecessary trials.      Fla. Peach

Corp. v. Commissioner, 90 T.C. 678, 681 (1988).     A motion for

partial summary judgment may be granted if there is no genuine

issue as to any material fact.      See Rule 121(b); Elec. Arts, Inc.

v. Commissioner, 118 T.C. 226, 238 (2002).     The moving party

bears the burden of showing that there is no genuine issue of

material fact, and factual inferences will be read in a manner

most favorable to the party opposing summary judgment.      Bond v.

Commissioner, 100 T.C. 32, 36 (1993); Dahlstrom v. Commissioner,

85 T.C. 812, 821 (1985).     A partial summary adjudication is

appropriate if all issues in the case are not disposed of.       See

Rule 121(b); Turner Broad. Sys., Inc. & Subs. v. Commissioner,

111 T.C. 315, 323-324 (1998).    This case is ripe for partial

summary judgment with respect to the termination and net

operating loss issues.    Genuine issues of material fact exist

however, with respect to the compensation issue.

II.    The Controversy--Generally

       Petitioner seeks to use NOLs that arose before and during

his bankruptcy proceeding.    Under section 1398(i), petitioner

would succeed to such tax attributes upon the “termination of an
                               - 9 -

estate”.   Petitioner contends that, in the context of his chapter

11 bankruptcy reorganization, the estate terminated at the time

of the confirmation of the plan of reorganization and discharge

of the debtor.3   Respondent contends that the bankruptcy estate

does not terminate until the bankruptcy proceeding is formally

closed.4   We must resolve this threshold question before

considering whether petitioner is entitled to use certain net

operating loss deductions from the bankruptcy estate.

     The relationship, for Federal tax purposes, between a

bankrupt and a chapter 11 bankruptcy estate has been described as

follows:

     The filing of a bankruptcy petition under Chapter 11
     creates a new taxable entity, the bankruptcy estate,
     that is separate from the debtor. Sec. 1398. 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 operating loss]


     3
       Our consideration of the issues in this case is limited to
the effect of sec. 1398 in the context of an individual ch. 11
bankruptcy reorganization.
     4
       We note that at the time of the filing of the motion for
summary judgment, the bankruptcy court had not entered a final
order closing petitioner’s ch. 11 proceeding. If we were to hold
that the closing of the bankruptcy proceeding was the time of
“termination”, the bankruptcy estate’s tax attributes would not
transfer to petitioner until the closing of the estate. That
could create a situation where petitioner would not be able to
use the tax attributes even though the bankruptcy estate no
longer controlled the assets or needed the tax attributes.
                                - 10 -

       carryforward). Sec. 1398(g). In the case of NOLs, the
       bankruptcy estate succeeds to the NOLs as determined
       under section 172, as of the first day of the
       individual debtor’s taxable year in which the case
       commences. Sec. 1398(g)(1). The NOLs as determined by
       a calendar year individual debtor, as of January 1 of
       the year the debtor files a bankruptcy petition, go to
       the bankruptcy estate for its exclusive use for the
       benefit of the creditors on the commencement date. Id.
       The individual debtor then succeeds to and takes into
       account the NOLs of the bankruptcy estate at the
       termination of the bankruptcy case. Sec. 1398(i).
       * * * [Lassiter v. Commissioner, T.C. Memo. 2002-25.]

III.    Termination for Purposes of Section 1398(i)

       Petitioner seeks to use tax losses from his bankruptcy

estate.    Section 1398(i) provides for the circumstances under

which such tax attributes become available to the debtor/

taxpayer.    Section 1398(i) provides:

            SEC. 1398(i). Debtor Succeeds to Tax Attributes
       of 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. [Emphasis added.]

The parties disagree about the meaning of the phrase

“termination of an estate”.    Petitioner argues that the

termination of his estate occurred when his plan of

reorganization was confirmed.    Respondent, however, argues that

termination occurs only at the time when a bankruptcy court
                               - 11 -

enters an order formally closing the proceeding and releasing its

jurisdiction over a bankruptcy estate.

     The phrase “termination of an estate” could have differing

meanings in the context of a bankruptcy proceeding.    If Congress

had used the phrase “closing of the bankruptcy proceeding”, there

would have been less ambiguity or room for interpretation.

However, either respondent’s or petitioner’s interpretation could

fit within the meaning of the phrase “termination of an estate”.

For example, a bankruptcy estate could be considered to be

terminated when a bankruptcy court enters an order closing the

estate.   Likewise, in the context of a plan of reorganization,

when a bankruptcy court confirms a plan and discharges the

debtor, the estate, in substance and effect, may be considered to

be terminated.   At that point in the proceeding, the bankruptcy

court’s role is to monitor the plan of reorganization.    The

disputed phrase is not defined in the Internal Revenue Code or

the underlying regulations.

     Section 350(a) of the Bankruptcy Code specifically provides

for the closing of a bankruptcy proceeding “After an estate is

fully administered and the court has discharged the trustee”.     11

U.S.C. sec. 350(a) (2000).    Bankruptcy courts have regularly

defined closing of an estate as the time a final decree is

entered closing the case.    See S.S. Retail Stores v. Ekstrom, 216

F.3d 882, 884 (9th Cir. 2000); In re Duplan Corp., 212 F.3d 144,
                               - 12 -

148 (2d Cir. 2000); Duebler v. Sherneth Corp., 160 F.2d 472, 474

(2d Cir. 1947).

     Similarly, the phrase “termination of an estate” has, by

necessity, been interpreted and defined by numerous bankruptcy

courts.   For example, one bankruptcy court, in deciding whether

the bankruptcy estate had incurred certain administrative

expenses in a chapter 11 bankruptcy proceeding, held that the

estate had terminated upon the confirmation of the plan of

reorganization.   See In re Westholt Manufacturing, Inc., 20

Bankr. 368 (1982), affd. sub nom. United States v. Redmond, 36

Bankr. 932 (D. Kan. 1984).   In the In re Westholt case, the

Government argued that the debtor’s unpaid employment taxes were

incurred while the debtor was under chapter 11 bankruptcy

protection and therefore the taxes were administrative expenses

of the estate.    In In re Westholt the Government argued, as it

has in the case before us:

     until a case is closed pursuant to a final decree at
     the consummation of the Chapter 11 plan, the bankruptcy
     estate remains in existence and the court retains
     jurisdiction over the reorganization plan so that
     employment and unemployment taxes incurred by the
     debtor in possession following confirmation of the plan
     are taxes incurred by the estate and, thus, properly
     characterized as administrative expenses. * * * [Id.
     at 371.]

     The court in In re Westholt, however, held that the estate

was not obligated for the employment tax because the estate

terminated upon the confirmation of the plan.   The court
                              - 13 -

explained that “At confirmation, all the property of the estate

is vested in the debtor, thereby terminating the estate’s

existence, although the court has continued jurisdiction under

section 1142 to oversee the plan’s execution.”    Id. at 372 (fn.

ref. omitted).   The principle that an estate terminates upon

confirmation of the plan of reorganization is one that is widely

held amongst the bankruptcy courts.    See, e.g., In re Walker, 198

Bankr. 476 (Bankr. E.D. Va. 1996); Cook v. Chrysler Credit Corp.,

174 Bankr. 321 (M.D. Ala. 1994); In re Mold Makers, Inc., 124

Bankr. 766 (Bankr. W.D. Ill. 1990); Marine Iron & Shipbuilding

Co. v. City of Duluth, 104 Bankr. 976 (D. Minn. 1989); In re Tri-

L Corp., 65 Bankr. 774 (Bankr. D. Utah 1986).

     In a similar vein, it was held in Gen. Elec. Credit Corp. v.

Nardulli & Sons, Inc., 836 F.2d 184, 190 (3d Cir. 1988), that

“Insolvency proceedings terminate upon confirmation of a plan of

reorganization, or on the effective date or consummation date of

the plan, if provided for in the plan.”   The specific issue

considered in that chapter 11 bankruptcy proceeding was whether a

creditor’s perfected security interest had expired.    As a

threshold to the primary issue, the court had to decide when the

insolvency proceeding terminated.

     Likewise, it was held that a bankruptcy court’s

postconfirmation jurisdiction was limited to matters concerning

the operation of the confirmed plan and did not extend to
                              - 14 -

questions interpreting substantive aspects underlying the plan.

In re Greenly Energy Holdings, Inc., 110 Bankr. 173 (Bankr. E.D.

Pa. 1990).   In that case, the bankruptcy court was considering

whether it retained postconfirmation jurisdiction to decide

corporate matters, such as who owned stock, entitlement to

distributions, shareholder representation on a board of

directors, and voting rights under the confirmed plan of

reorganization.   The court “[balanced] the need to retain

jurisdiction [of] post-confirmation [matters] with the need to

end the reorganization process at some point.”   Id. at 180.     The

court did not decide the corporate matters and relied on the

holding in In re Westholt Manufacturing, Inc., supra, and other

cases that “‘At confirmation, all the property of the estate is

vested in the debtor, thereby terminating the estate’s existence,

although the court has continued jurisdiction under section 1142

* * * to oversee the plan’s execution.’”   In re Greenly Energy

Holdings, Inc., supra at 180 (quoting In re Westholt

Manufacturing, Inc., supra at 372).

     The above-referenced line of chapter 11 bankruptcy cases

uniformly holds that, for purposes of determining substantive

questions regarding the estate, a “termination” occurs at the

time the debtor’s plan of reorganization is confirmed.    In a

chapter 11 proceeding involving a venue question, however, the

holding of the Court of Appeals for the Third Circuit varied from
                               - 15 -

the above holdings.    The Court of Appeals held that for the

procedural purpose of venue, the bankruptcy estate did not

terminate at the time of confirmation.    In re Emerson Radio

Corp., 52 F.3d 50, 54 (3d Cir. 1995).    In In re Emerson, the

court considered whether to transfer venue in a chapter 11

bankruptcy proceeding under bankruptcy rule 1014(b).    That rule

provides procedures for when petitions of related debtors are

filed in different bankruptcy courts.    Bankruptcy rule 1014(b),

in pertinent part, provides:

     “If petitions commencing cases under the Code are filed
     in different districts * * * the court may determine,
     in the interest of justice or for the convenience of
     the parties, the district or districts in which the
     case or cases should proceed. * * * ” [In re Emerson
     Radio Corp., supra at 53.]

In In re Emerson, one party argued that the bankrupt was no

longer a “debtor” for purposes of bankruptcy rule 1014(b) because

its bankruptcy estate terminated upon confirmation of the

reorganization plan.    The Court of Appeals for the Third Circuit

rejected that argument and held that for purposes of bankruptcy

rule 1014(b), the debtor’s status was not ended at the time of

confirmation of its plan of reorganization.

     In holding that the venue rules apply until such time as the

bankruptcy proceeding is closed, the court in In re Emerson

focused on the need of the bankruptcy parties to “know with a

fair degree of certainty the court which can entertain an

application”, and that “Applying Rule 1014(b) and section 350 [of
                               - 16 -

the Bankruptcy Code] as written supplies that certainty.”     Id. at

55.   We note that the court in In re Emerson did not attempt to

define “terminate” in the context of section 1398, but held that

it retained jurisdiction over the debtor until the bankruptcy

proceeding finally closed.

      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.     The holding

in In re Emerson was applied in a procedural context to generally

determine the proper venue for a chapter 11 proceeding.    The

focus of that inquiry must necessarily be the entire chapter 11

proceeding from the time of petition to the closing.

      In the setting of a bankruptcy reorganization, it would be

more appropriate to transfer the tax attributes of the bankruptcy

estate to the discharged debtor when the plan of reorganization

is confirmed.   The underlying purpose of a bankruptcy

reorganization is “rehabilitating the debtor and avoiding

forfeitures by creditors.”    Pioneer Inv. Servs. Co. v. Brunswick

Associates Ltd. Partnership, 507 U.S. 380, 389 (1993).     “[T]o

achieve that purpose, the debtor has to continue to operate

between the filing of the petition and the adjudication of

bankruptcy.”    Pa. Dept. of Envtl. Res. v. Tri-State Clinical

Labs., Inc., 178 F.3d 685, 690 (3d Cir. 1999).
                                  - 17 -

        The approval of the plan and the concurrent discharge

facilitates the debtor’s continuing his prebankruptcy activity.

At that juncture, the estate is generally relieved of the

administration of the debtor’s property.       Logically, the debtor

should be able to go forward with prebankruptcy activity,

including any assumption of tax attributes of the bankruptcy

estate.       It would be illogical to keep a debtor from a tax loss

that might assist in the rehabilitation process during a period

when the estate was, for all effects and purposes, dormant.

        In the case we consider, petitioner was the debtor in his

chapter 11 reorganization.5      Recognizing that chapter 11

bankruptcy reorganizations are intended to rehabilitate the

debtor, we note that section 1141 of the Bankruptcy Code provides

“Except as otherwise provided in the plan or the order confirming

the plan, the confirmation of a plan vests all of the property of

the estate in the debtor.”       11 U.S.C. sec. 1141(b) (2000).   Those

bankruptcy cases which have held that termination occurs upon

confirmation were chapter 11 bankruptcy reorganizations, and the

deciding courts placed reliance on section 1141 of the Bankruptcy

Code.       We must note that section 1141 of the Bankruptcy Code

applies only to chapter 11 bankruptcies.       See Cusano v. Klein,

264 F.3d 936 (9th Cir. 2001).       We also recognize that the phrase


        5
       We do not consider here whether the phrase “termination of
an estate” should be universally understood in the context of all
types of bankruptcy proceedings.
                                - 18 -

“termination of an estate” as used in section 1398(i) could have

a different meaning in the context of other types of bankruptcy

proceedings, e.g., chapter 7 liquidating proceedings.    The

possibility of differing treatment, however, may be appropriate

and may account for the use of “terminate” in section 1398(i),

instead of the term “closed”.

     An important difference between chapter 11 and other

bankruptcy proceedings is that the chapter 11 debtor is generally

discharged at the time of confirmation of the plan.    In addition,

at or about the time of confirmation the estate’s assets are

either returned to the debtor and/or (as in this case)

transferred to a liquidating trust for the benefit of creditors.

A liquidating trust for the benefit of the estate’s creditors has

been treated as a taxable entity separate from and not a

continuation or arm of the estate and/or the debtor.     Holywell

Corp. v. Smith, 503 U.S. 47 (1992); see also In re Shank, 240

Bankr. 216 (Bankr. D. Md. 1999).    In Holywell, the Supreme Court,

in overruling the lower courts, held that when a plan of

reorganization caused the transfer of the bankruptcy estate’s

assets to a liquidating trust for the benefit of creditors, the

plan did not merely substitute the trustee for the debtor as the

fiduciary of the bankruptcy estate, but created the trust as a

separate entity and taxpayer.
                               - 19 -

     Accordingly, once a plan vesting an estate’s assets in a

liquidating trust is confirmed, the estate is generally not

required to report or pay tax on gains derived by the trust from

disposition of those assets.   In that respect, the estate lacks

the potential for the incidence of tax or use of tax losses.

Conversely, at that time the debtor is being released for the

purpose of rehabilitation.   Those factors are most conducive to

and support an approach where the estate’s tax attributes be

returned to the debtor.6

     In the case before us, all but two of the estate’s assets

were transferred to the liquidating trust.    The two assets were

the stock of S corporations, which the estate was permitted to

hold as a mere nominee in order to maintain S corporation status.

Under the terms of the plan, the estate did not maintain control

or, in effect, ownership of the stock.    Accordingly, there is no

reason to delay the transfer of the estate’s tax attributes to

the debtor/petitioner in this case.     We hasten to note that as of

the time of the summary judgment motion in 2003, petitioner’s

chapter 11 bankruptcy proceeding had not been formally closed.

Under those circumstances, waiting until the closing of the

chapter 11 proceeding would be unjust and a possible detriment to



     6
       The parties in this case do not contend that the trustee
or the liquidating trust should be considered as a part of the
estate for purposes of sec. 1398 or the use of the estate’s or
the debtor’s tax attributes.
                              - 20 -

the debtor’s opportunity for rehabilitation, without providing

any particular benefit to the estate or the estate’s creditors.

      Our analysis of this matter is focused on the facts before

us.   On the basis of those facts and in accord with established

bankruptcy case precedent, we hold that termination of

petitioner’s bankruptcy estate occurred at the time of the

confirmation of the plan of reorganization.   In reaching this

holding, we do not attempt to establish a “bright-line rule”

under which all chapter 11 bankruptcy reorganizations would

“terminate”, within the meaning of section 1398(i), at the time

of the plan’s confirmation.   The circumstances of each case

should dictate whether a “termination” has occurred.

      In prior Memorandum Opinions of this Court, the view was

expressed that the phrase “termination of an estate”, as used in

section 1398(i), should be the same as or compatible with the

phrase closing of the estate as used in section 346(i)(2) of the

Bankruptcy Code, 11 U.S.C. section 346(i)(2) (2000).    See McGuirl

v. Commissioner, T.C. Memo. 1999-21; Beery v. Commissioner, T.C.

Memo. 1996-464; cf. Firsdon v. United States, 95 F.3d 444, 446

(6th Cir. 1996); Banks v. Commissioner, T.C. Memo. 2001-48, affd.

in part, revd. in part and remanded 345 F.3d 373 (6th Cir. 2003);

Gulley v. Commissioner, T.C. Memo. 2000-190; Kahle v.

Commissioner, T.C. Memo. 1997-91.   However, all of those cases

either began as chapter 7 liquidations or were converted from
                              - 21 -

chapter 11 reorganizations to chapter 7 liquidations and are thus

distinguishable from the current case.   In addition, the question

of whether a “termination” occurred before the closing of the

estate was not squarely presented in any of those cases.

     Section 346(i)(2) of the Bankruptcy Code, like section 1398,

provides for the succession of tax attributes from the estate to

the debtor in cases under chapter 7 or 11 of the Bankruptcy Code.

Section 346(i)(2) of the Bankruptcy Code provides:   “After such a

case is closed or dismissed, the debtor shall succeed to any tax

attribute to which the estate succeeded under paragraph (1) of

this subsection but that was not utilized by the estate.”    11

U.S.C. sec. 346.   Section 346(i)(2) of the Bankruptcy Code is

unambiguous and provides for the transfer of tax attributes after

the bankruptcy case is closed.   As we have already noted, the

term “closed” is well established in bankruptcy parlance.

     In Firsdon v. United States, supra, the issue before the

court was whether the bankrupt’s time for claiming a refund had

expired so as to deny the District Court jurisdiction over the

bankrupt’s refund claim.7   The bankrupt relied on section

346(i)(2) of the Bankruptcy Code, which provides for the tolling

of limitation periods during the pendency of a bankruptcy case.

The Court of Appeals for the Sixth Circuit analyzed section



     7
       The limitations question had to be resolved before the
District Court could consider the bankrupt’s claims to the
estate’s losses within the context of sec. 1398(i).
                               - 22 -

346(i)(2) of the Bankruptcy Code and its relationship to section

1398(i).   The Court of Appeals found significant the following

language contained in section 346(a) of the Bankruptcy Code:

“Except to the extent otherwise provided for in this section,

subsections (b), (c), (d), (e), (g), (h), (i), and (j) of this

section apply notwithstanding any State or local law imposing a

tax, but subject to the Internal Revenue Code of 1986.”

     The Court of Appeals for the Sixth Circuit reasoned that the

phrase “subject to the Internal Revenue Code” in section 346(a)

of the Bankruptcy Code contemplated that the Bankruptcy Code

sections had no effect on the Federal tax laws, and that

subsection (a) applies “‘only to state and local laws’”.    Firsdon

v. United States, supra at 446 (quoting In re Page, 163 Bankr.

196, 197-198 (Bankr. D. Kan. 1994)).    The Court of Appeals also

referenced the legislative history and noted that “a potential

jurisdictional conflict” existed resulting in a “compromise * * *

whereby the tax provisions [of Bankruptcy Code section 346(i)]

were made ‘inapplicable to Federal taxes,’ in the hope that

comparable federal provisions would be enacted during the

subsequent (96th) Congress.”   Id. at 447 (quoting H. Rept. 95-

595, at 3 (1977)).   It also explained:

     although I.R.C. sec. 1398(i) follows 11 U.S.C. sec.
     346(i)(2) in providing for the succession of a
     bankruptcy estate’s tax attributes for federal tax
     purposes, it does not contain any of the tolling
     language found in the second sentence of sec.
     346(i)(2). [Id.]
                               - 23 -

          As a consequence, sec. 346(i)(2) remains
     inapplicable to the federal tax laws, even though it
     was originally drafted with those laws in mind. [Id.]

The Court of Appeals also pointed out that, while Congress had

section 346(i)(2) of the Bankruptcy Code in mind when enacting

section 1398(i), Congress drafted section 1398(i) to stand on its

own and have distinct differences from section 346(i)(2) of the

Bankruptcy Code.

     It was not a matter of coincidence that section 346(i)(2)

of the Bankruptcy Code and section 1398(i) were enacted

approximately 2 years apart.   Congress, in the first instance,

used the term “closed” in section 346 of the Bankruptcy Code and

then chose to use the term “termination” in the subsequent

enactment of section 1398.   If Congress had intended for tax

attributes to pass from a bankruptcy estate to a debtor at the

same point in the proceeding under titles 11 and 26 of the United

States Code, the term “closed” or “termination” could have been

used in both provisions.   However, Congress chose not to use the

same language, and some distinction may reasonably be drawn from

this difference.

     Another possible reason for Congress’s use of the phrase

“termination of an estate” in section 1398(i) was to provide

symmetry for use of that phrase in subsection (f) of section

1398.   The phrase “termination of the estate” is also used in

section 1398(f)(2).   Where Congress uses the same term or phrase
                              - 24 -

in more than one place in the same statutory section, the term or

phrase should have the same meaning.   See Venture Funding v.

Commissioner, 110 T.C. 236, 250 (1998).

     The phrase “termination of the estate” in section 1398(f)(2)

has been considered in the context of a chapter 7 liquidating

bankruptcy.   Section 1398(f)(2) provides:

     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 bankruptcy court analyzed whether abandonment of assets

of a bankruptcy estate by the trustee triggers tax consequences

to the estate in In re McGowan, 95 Bankr. 104 (Bankr. N.D. Iowa

1988).   The bankruptcy trustee and the debtor argued that the

trustee’s abandonment of the property was a disposition for tax

purposes and that the tax liability arising from the disposition

was the obligation of the estate or the trustee.   The trustee and

the debtor stood to gain by their argument because there were no

assets in the estate and the parties agreed that the trustee

would not be personally liable for the taxes of the estate.     The

Internal Revenue Service and the State of Iowa argued that the

abandonment of the assets was a “transfer” of assets from the

bankruptcy estate to the debtor pursuant to section 1398(f)(2),

and therefore the estate would not have any tax consequences
                               - 25 -

pursuant to section 346(g)(1) of the Bankruptcy Code.   As a

result, the transaction would be a taxable event to the debtor.

     The holding in In re McGowan, supra at 107, depended upon

the definition of the phrase “termination of an estate”.    If the

estate had terminated as of the date of the abandonment, then the

transaction would have qualified under section 1398(f)(2) as a

transfer of assets, nontaxable to the estate.   Otherwise, the

transaction would have been a taxable disposition to the estate.

The bankruptcy court recognized, as we have, that the phrase

“termination of the estate” is susceptible of differing

definitions.    That court held that the definition of “termination

of the estate”, within the context of section 1398(f)(2),

included the termination of the estate’s interest in property,

including the abandonment of property.

     The effect of that holding was to place the tax liability on

the debtor.    The court reasoned that it had

     difficulty with the notion that the mere act of
     abandoning burdensome property creates tax liability
     for the trustee. The effect of such a rule could be to
     place the burden of any taxes arising from such
     “dispositions” upon the unencumbered assets which might
     otherwise be distributed to unsecured creditors. [Id.
     at 108.]

While the bankruptcy court was concerned that the burden of the

tax liability on the debtor could inhibit the debtor’s fresh

start, in those circumstances, the interests of the creditors

were considered to be of higher priority.
                               - 26 -

     A similar result was reached in another opinion rendered by

the same bankruptcy judge who had decided In re McGowan, supra.

See In re Olson, 121 Bankr. 346 (N.D. Iowa 1990), affd. 930 F.2d

6 (8th Cir. 1991).    In affirming the opinion of the bankruptcy

court, the Court of Appeals agreed that there should not be

differing tax results where bankruptcy property is abandoned

during administration or at the closing of the estate.

     In the case of In re A.J. Lane & Co., 133 Bankr. 264 (Bankr.

D. Mass. 1991), the bankruptcy court also considered the

abandonment of property and the related tax consequences under

section 1398(f).8    In that case, the court referenced an Internal

Revenue Service Private Letter Ruling that included the

Government’s position that the phrase “termination of the estate”

in section 1398(f)(2) includes termination of the estate’s

interest in property by virtue of abandonment or exemption.

     The court then examined the interplay and design of section

1398(f) and (i) and commented:



     8
       We have cited In re A.J. Lane & Co., 133 Bankr. 264
(Bankr. D. Mass. 1991), and In re Olson, 121 Bankr. 346 (N.D.
Iowa 1990), affd. 930 F.2d 6 (8th Cir. 1991), merely to show that
a “termination” may occur at some time other than the closing of
a bankruptcy case and that a parallel result is appropriate under
subsecs. (f) and (i) of sec. 1398. We recognize that with
respect to sec. 1398(f) the courts in In re A.J. Lane & Co.,
supra, and In re Olson, supra, had differing rationales. The
differing rationales, however, have no bearing on the issue we
consider. We also note that In re Olson, supra, is a ch. 7
bankruptcy proceeding, whereas In re A.J. Lane & Co., supra, is a
ch. 11 proceeding.
                                  - 27 -

       The design of the statute is clear. The party holding
       the property, whether the debtor or the estate, is also
       entitled to any available net operating loss carryover,
       so that if that party incurs a taxable gain in the
       disposition of the property he can use the net
       operating loss carryover to offset the gain. * * *
       [Id. at 272.]

The court further reasoned that the intended symmetry of the two

subsections warranted that the phrase “termination of the estate”

should have the same meaning in the context of subsections (f)

and (i) of section 1398.       This would satisfy the congressional

intent to place net operating loss deductions with the party that

recognizes the gain upon the disposition of the property.9

       The interpretation that subsections (f) and (i) of section

1398 were intended to cause tax losses to vest with the party

recognizing gain on the disposition of property is a reasonable

one.       As previously explained, in the context of section 1398,



       9
       Under sec. 1398, the tax attributes (net operating losses)
follow the assets of the debtor and the debtor’s bankruptcy
estate. Those parties are expressly contemplated within the
context of sec. 1398 and, in particular, subsecs. (f), (g), and
(i). The use of the debtor’s or the estate’s tax attributes is a
limited one and does not extend to unrelated third parties.
Congress specifically provided that the bankruptcy estate
succeeds to the debtor’s tax attributes and that those attributes
return to the debtor upon the termination of the estate. Other
entities that may be connected with the bankruptcy estate, such
as a liquidating trust for the benefit of creditors, have been
found to be separate or unrelated entities for purpose of
taxation. See Holywell Corp. v. Smith, 503 U.S. 47 (1992).
Accordingly, when petitioner’s bankruptcy estate assets were
transferred to the liquidating trust for the benefit of
creditors, it was not contemplated that the creditors or the
trust for their benefit would succeed to the tax attributes of
petitioner/debtor or his estate.
                               - 28 -

that concept does not extend beyond the debtor and the bankruptcy

estate.    In the setting of this chapter 11 bankruptcy, gains and

losses of the debtor and/or the estate would vest with the

appropriate party if “termination” occurred at the time of

confirmation.

      We hold that the concept of closing an estate, as used in

section 346 of the Bankruptcy Code, is not identical for all

purposes to the phrase “termination of an estate” as used in

section 1398.    To the extent that the rationale or holding of

McGuirl v. Commissioner, T.C. Memo. 1999-21, or Beery v.

Commissioner, T.C. Memo. 1996-464, indicates otherwise, it is

distinguished.

IV.   Petitioner’s Use of the Net Operating Losses

      Having decided that the tax attributes of the bankruptcy

estate transferred to petitioner upon the confirmation of the

plan of reorganization, we now address the parties’ disagreement

over which, if any, net operating losses (NOLs) are available to

petitioner and the years to which they may be carried.    In this

motion for partial summary judgment, the parties are focused on

generalized threshold legal questions.10   Those questions concern

whether petitioner may apply losses acquired from his bankruptcy

estate upon its termination against his nonbankruptcy income



      10
       The parties have not addressed the specifics of the
losses, such as the amounts available and the mechanics of
application under sec. 172.
                                - 29 -

recognized during 1995, 1996, and 1997 (during the pendency of

the bankruptcy proceeding).11

     Petitioner contends that he is entitled to $136 million in

NOLs and $440 million in capital losses from years before and

after the commencement of the bankruptcy.   Petitioner’s

contentions present two questions with respect to the application

of the losses to his 1995, 1996, and 1997 nonbankruptcy income,

which petitioner would have earned during the pendency of the

bankruptcy.   One question concerns NOL deductions that arose

before the commencement of the bankruptcy and are succeeded to by

the bankruptcy estate, after which any unused losses are returned

to the discharged debtor.   The other question involves

circumstances where the NOL deduction arises in the bankruptcy

estate.   In that regard, the question is whether the debtor can

use the estate’s losses, succeeded to by the debtor, with respect

to the debtor’s nonbankruptcy income recognized after the

commencement and before the termination of the bankruptcy.

     Respondent argues that petitioner is entitled to carry

forward qualified NOLs only to years occurring after the



     11
       Petitioner’s income tax deficiencies for 1995, 1996, and
1997 are based on respondent’s determination that petitioner
received compensation/income from his bankruptcy estate for each
year. Petitioner contends that the amounts received were
nontaxable proceeds of loans, and respondent contends that the
amounts were compensation or otherwise taxable income. We note
that petitioner’s bankruptcy commenced on Feb. 23, 1995, and
terminated (upon confirmation and discharge) on Aug. 31, 1997.
                                - 30 -

bankruptcy termination (the year in which petitioner succeeded to

the NOLs from the bankruptcy estate).    Petitioner argues that he

may apply losses of the bankruptcy estate that he succeeded to at

confirmation to any year after the commencement of the bankruptcy

(1995 and later).   Petitioner also argues that he may apply his

own prebankruptcy NOLs, to the extent not used by the bankruptcy

estate, to his tax years following the commencement of the

bankruptcy.

     Section 1398 was enacted to provide rules relating to the

Federal tax regimen to be used in connection with individuals’

chapter 7 or chapter 11 bankruptcies under title 11, U.S.C.    See

sec. 1398(a).   Section 1398, among other matters, addresses

questions concerning which entity is to recognize income and when

either entity may succeed to the tax attributes of the other.

Ultimately, the question we consider is whether the estate

becomes the preeminent or sole taxpayer (to petitioner’s

exclusion) for purposes of application of NOLs to income for

years occurring during the bankruptcy proceeding.   At the

commencement of the bankruptcy, the estate becomes a taxable

entity treated as an individual taxpayer with respect to the

computation of income from assets being administered in the

estate under title 11, U.S.C.    The debtor continues as a separate

taxable entity during the pendency of the bankruptcy, with

respect to income that the bankruptcy estate is not entitled to
                                - 31 -

under title 11, U.S.C.

     Under section 1398(g), the estate succeeds to certain of the

debtor’s income tax attributes, including the debtor’s NOL

carryovers (under section 172) and capital loss carryovers (under

section 1212) from tax periods prior to the commencement of the

bankruptcy.   Sec. 1398(g)(1), (5).      In a like manner, to the

extent the estate has not used those same tax attributes, the

debtor succeeds to them at the termination of the estate.       Sec.

1398(i).   Accordingly, upon the commencement of a bankruptcy, the

estate becomes a taxpayer with respect to the debtor’s property

in the bankruptcy proceeding.    Upon termination of the estate,

the estate’s status as a separate parallel taxpayer ends and its

unused tax attributes transfer to the debtor.       Id.

     Although a debtor may succeed to the estate’s NOLs at the

termination of the estate, section 1398(j)(2)(B) places certain

limitations on a debtor’s ability to use NOLs.       Section

1398(j)(2)(B) provides the following rules with respect to net

operating losses:   “The debtor may not carry back to a taxable

year before the debtor’s taxable year in which the [bankruptcy]

case commences any carryback from a taxable year ending after the

case commences.”    This section expressly prohibits a debtor from

carrying back the estate’s or the debtor’s postcommencement
                              - 32 -

losses to prepetition taxable years.12    We note that section

1398(j)(2)(B) applies with respect to “any carryback from a

taxable year ending after the case commences.”    The use of the

all-inclusive adjective “any” in section 1398(j)(2)(B) would be

inclusive of the estate’s NOLs that are succeeded to by the

debtor.   Accordingly, section 1398(j)(2)(B) prohibits only

carrybacks to precommencement years and does not place any

limitation on postcommencement years.13

     The use of the bankruptcy commencement date in section

1398(j)(2)(B), to demarcate the earliest year to which a loss may

be carried back as well as the earliest year from which such a

loss may emanate, appears to favor petitioner’s position that he

may carry forward the NOLs received from the bankruptcy estate to

postcommencement years (1995 and forward).    The purpose of

section 1398 is achieved during the bankruptcy by causing the

estate to be responsible for income attributable to assets which

are part of the bankruptcy estate.     In that regard, the debtor is


     12
       No reference is made in sec. 1398(j)(2)(B) to the
carryback of precommencement NOLs to precommencement years.
Whether such a carryback is permitted is not a matter that need
be decided with respect to the factual circumstances presented in
this case.
     13
        We recognize that sec. 1398(g)(1) uses the word
“carryovers” in describing the attributes to which the debtor may
succeed, but the operative language, as discussed above,
indicates that the use of the word “carryovers” was not intended
as a limitation. Rather, the word “carryovers” appears to
reference the movement of the attribute from the estate to the
debtor.
                              - 33 -

responsible for the income tax attributes for any assets that the

debtor retains outside of the bankruptcy proceeding.     In effect,

the statute creates two separate, but parallel, taxpayers during

the bankruptcy estate, followed by the recombination of both

their attributes into one upon the estate’s termination.14

Significantly, with respect to the tax attributes, the

debtor/taxpayer is the predecessor to and successor of the

bankruptcy estate.

     The parties agree that section 1398 permits a debtor to

carry forward either losses sourced in tax years prior to the

bankruptcy commencement or losses which the debtor acquired from

the estate.   The dispute concerns whether the losses may be

carried forward from the commencement of the bankruptcy

proceeding or are limited to the period beginning with the

termination of the estate.   So, for example, we consider whether

petitioner may carry forward his own prebankruptcy NOL, to the

extent not used or absorbed by the estate, to his 1995, 1996,

and/or 1997 tax years.   This matter is further complicated by the

two parallel but separate taxpayers (estate and debtor) for the

1995, 1996, and 1997 tax years.   Ultimately, the question is

whether the bankruptcy estate becomes the preeminent or sole

taxpayer (to petitioner’s exclusion) for purposes of carryforward


     14
       We note that only the estate is expressly permitted to
carry back losses to precommencement years during the bankruptcy.
Sec. 1398(j)(2)(A).
                              - 34 -

of pretermination NOLs to the bankruptcy years; in other words,

whether petitioner is limited to posttermination (1997 and later)

year carryforwards because of the estate’s application of the

debtor’s precommencement losses and the estate’s losses to any of

the debtor’s precommencement and the estate’s postcommencement

income.   Although the statute expressly prohibits carrybacks by

the debtor with respect to years before the commencement of the

bankruptcy, there is no such limitation with respect to

carryforwards to postcommencement years.

     Because of the parallel treatment on the income side of the

equation (requiring the debtor and the estate to report only the

income to which each is entitled), it follows that the debtor’s

precommencement and the estate’s losses, to the extent not fully

absorbed during the bankruptcy years, should be applied to any

parallel income of the debtor during those same years.    Although

the ordering of such losses (computation and application) could

become complex, it is, nevertheless, appropriate.   There is

nothing in section 1398 which would prohibit such treatment.15

Indeed, the approach of section 1398 regarding the income side

would seem to promote this result with respect to the losses.    If

a debtor were unable to apply post- or pre-bankruptcy losses to


     15
       Other than the limitation on the debtor’s ability to
apply carrybacks to prebankruptcy years, sec. 1398 does not
provide any rules or limitations as to the calculation or use of
carrybacks or carryovers of NOLs. Sec. 1398 references sec. 172
for such matters.
                                - 35 -

reduce the debtor’s nonbankruptcy income realized during the

bankruptcy, those losses might never be used.16   It is unlikely

that such a result was intended.

     We must, however, also consider section 172, which defines

the key terms and provides for the computations of net operating

losses, carrybacks, and carryforwards.    Subsections (g)(1) and

(i) of section 1398 each provide that a debtor succeeds to loss

carryovers under section 172.    Section 172(a) allows a deduction

for the taxable year of “an amount equal to the aggregate of (1)

the net operating loss carryovers to such year, plus (2) the net

operating loss carrybacks to such year.”    The allowable carryback

and carryforward periods for the taxable years at issue are 3

years and 15 years, respectively.    See sec. 172(b).17

     Section 172(b)(2), in pertinent part, provides:

     Amount of carrybacks and carryovers.--The entire amount
     of the net operating loss for any taxable year * * *
     shall be carried to the earliest of the taxable years
     to which * * * such loss may be carried. The portion
     of such loss which shall be carried to each of the
     other taxable years shall be the excess, if any, of the
     amount of such loss over the sum of the taxable income
     for each of the prior taxable years to which such loss
     may be carried.


     16
       The losses could be carried forward, but may be lost if
subsequent years’ gains are insufficient to absorb the losses.
     17
       The amendments to sec. 172 by the Taxpayer Relief Act of
1997, Pub. L. 105-34, sec. 1082(a)(1) and (2), 111 Stat. 950,
revised the allowable carryback and carryforward periods to 2 and
20 years, respectively. These amendments do not apply to
petitioner’s 1995 and 1996 tax years because the amendment is
effective for years after Aug. 5, 1997.
                               - 36 -

     Section 1.172-1(b), Income Tax Regs., also describes the

steps to be taken to ascertain an NOL deduction for a given

taxable year.    It describes NOL carryovers from “preceding

taxable years” and NOL carrybacks from such “succeeding taxable

years”.    An NOL deduction from any given year maintains its

character of arising in that year when carried back or carried

forward.    See sec. 1.172-6, Income Tax Regs.   In addition,

section 1.172-4(a)(3), Income Tax Regs., provides:

     The amount which is carried back or carried over to any
     taxable year is the net operating loss to the extent it
     was not absorbed in the computation of the taxable (or
     net) income for other taxable years, preceding such
     taxable year, to which it may be carried back or
     carried over.

     Section 172, therefore, requires that the losses be carried

back and forward in a certain order and places outer limits on

the years to which the losses may be applied.     The regimen of

section 172 also provides that the year from which the loss

emanates does not change.    Therefore, losses acquired by the

estate or acquired or reacquired by the debtor would be time

limited according to the source year of the loss.

     Accordingly, sections 1398 and 172 do not circumscribe

petitioner’s ability to carry forward prepetition NOLs that he

succeeded to from the bankruptcy estate.    This view is supported

in the following dicta:

     Any remaining NOL belonging to the estate will be
     returned to the debtor-taxpayer after the discharge in
     bankruptcy and termination of the estate. Sec.
                              - 37 -

     1398(i). The debtor is then free to use the NOL as a
     carryforward, section 1398(i), or carryback, as long as
     the NOL arose before the commencement of the bankruptcy
     case, section 1398(j)(2)(B). [Kahle v. Commissioner,
     T.C. Memo. 1997-91.]

See also McGuirl v. Commissioner, T.C. Memo. 1999-21.

     Petitioner argues that he succeeded to NOLs that were

incurred by the operation of the bankruptcy estate and that

section 1398(j)(2)(B) limits only his ability to carry back such

NOLs to his taxable years that preceded the commencement of his

bankruptcy case.   Thus, he argues, he may use the NOLs in

postcommencement tax years.   We agree with petitioner that the

losses succeeded to from the estate may be used, to the extent

permitted in section 172, in the debtor’s taxable years beginning

with the year in which the bankruptcy commenced.

     Some commentators have drawn an analogy between section

1398(g) and (i), and section 642(h), which governs the

availability of a trust’s or estate’s unused loss carryovers to

the beneficiaries.   In section 642(h) it is clear that a

beneficiary may only carry forward the trust’s or estate’s unused

loss carryovers beginning with the year the trust or estate

terminates.   The analogy was likely drawn because of the

acquisition of a trust’s or estate’s tax losses upon the

termination of the trust or estate.    The analogy diminishes in

significance, however, because of an important distinction

between the section 642(h) situation and the section 1398
                              - 38 -

situation we consider in this case.    In the section 642 setting,

the estate or trust and the beneficiary are wholly separate

taxpayers, and a carryback to years before the commencement of

the estate or trust would not be a logical extension of the

succession concept in that setting.    Conversely, a bankruptcy

estate subsists as a parallel portion of the same taxpayer, the

debtor.   The bankruptcy estate is allowed to use the debtor’s

precommencement losses to offset any portion of the estate’s

income during the bankruptcy proceeding.    Upon the termination of

the bankruptcy estate, the losses of the bankruptcy estate

received by the debtor may, in part, include the debtor’s

precommencement losses.   Those differences make inappropriate any

attempt to draw an analogy between section 1398(g) and (i), and

section 642(h).18

     The parties have not provided any precedent or in-depth and

consequential deliberation concerning the question we consider.

Although a few cases have peripherally focused on this question,

no analysis or legislative history exists from which guidance may

prudently be sought.   Respondent referenced a few commentators’

prognoses of how losses from a bankruptcy would be treated.

Those commentaries are terse and contain no analysis, policy



     18
       As previously explained, sec. 1398 contemplates the use
of the debtor’s tax attributes by the bankruptcy estate and their
return to the debtor upon the termination of the estate. This
same reasoning distinguishes the analogy to sec. 642(h).
                               - 39 -

considerations, or precedents in support of the comments or

conclusions reached.19   Accordingly, we place no reliance on

these extraneous offerings.

      We therefore hold that petitioner is entitled to carry

forward losses inherited from the bankruptcy estate and those to

which the debtor was already entitled in accord with section 172

and the underlying regulations.   Those losses may be applied, in

accord with the provisions of section 172, for the year of the

commencement of the bankruptcy and later years.

V.   CBM and Bankruptcy Estate Payments to Petitioner

      Petitioner argues that the more than $2 million in payments

received from CBM were dividends or profits to the Benton estate

on account of its ownership of shares in CBM.   Petitioner further

asserts that the payments from CBM and a $25,000 payment he

received from the Benton estate constituted loans to him from the

Benton estate.   Finally, petitioner contends that the loans were

discharged as part of the plan and nontaxable to him pursuant to

section 108(a)(1)(A).

      Respondent argues that petitioner received the payments from

CBM and the Benton estate as compensation under a claim of right

without restriction as to disposition.


      19
       McQueen & Williams, Tax Aspects of Bankruptcy Law and
Practice, sec. 18-23 (2d ed. 1995); Newton & Bloom, Bankruptcy
and Insolvency Taxation, sec. 2.16 (John Wiley & Sons, 1991);
Tatlock, Discharge of Indebtedness, Bankruptcy, and Insolvency,
540-2d Tax Mgmt. (BNA), at A-37 (2003).
                                - 40 -

     Upon a careful review of the record and analyzing factual

inferences in a manner most favorable to the party opposing

summary judgment, we conclude that genuine issues of material

fact exist relating to this issue.       See Dahlstrom v.

Commissioner, 85 T.C. at 821.    Accordingly, summary judgment is

inappropriate with respect to this issue.


                                             An appropriate order

                                     will be issued.
