                        T.C. Memo. 1999-21



                      UNITED STATES TAX COURT



                 JAMES F. McGUIRL, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 9715-96.                     Filed January 29, 1999.



     James F. McGuirl, pro se.

     William J. Gregg and William P. Simonsen, for respondent.



                        MEMORANDUM OPINION


     DAWSON, Judge:   This case was assigned to Chief Special

Trial Judge Peter J. Panuthos, pursuant to the provisions of

section 7443A(b)(4) and Rules 180, 181, and 183.1    The Court



     1
           Unless otherwise indicated, section references are to
the Internal Revenue Code in effect for the year in issue, and
all Rule references are to the Tax Court Rules of Practice and
Procedure.
                                 - 2 -

agrees with and adopts the opinion of the Special Trial Judge,

which is set forth below.

                OPINION OF THE SPECIAL TRIAL JUDGE

     PANUTHOS, Chief Special Trial Judge:     Respondent determined

a deficiency in petitioner's 1993 Federal income tax in the

amount of $5,851 and additions to tax under sections 6651(a) and

6654(a) in the amounts of $1,462 and $2452, respectively.    In an

answer to an amended petition, respondent asserted an increased

deficiency in the amount of $22,844, and an increase in additions

to tax under sections 6651(a) and 6654(a) in the amounts of

$5,430 and $905, respectively.    In an amended answer to the

amended petition, respondent asserted an additional increase in

deficiency in the amount of $136,975, and an additional increase

in additions to tax under sections 6651(a) and 6654(a) in the

amounts of $34,525 and $5,711, respectively.    After concessions

by respondent, the deficiency in income tax remaining in dispute

is $25,366.   The additions to tax under sections 6651(a) and

6654(a) remaining in dispute are $6,061 and $1,015, respectively.

At the time of filing the petition, petitioner resided in

Washington, D.C.

     The issues remaining for decision are:    (1) Whether

petitioner is precluded from claiming a net operating loss

carryover from 1987 and 1988 to 1993 in the amount of $114,000

(or any greater amount); (2) whether petitioner is subject to the

     2
          For convenience, all sums have been rounded to the
nearest dollar amount.
                                - 3 -

addition to tax under section 6651(a) for failure to file a

timely return; and (3) whether petitioner is subject to the

addition to tax under section 6654 for failure to pay estimated

income tax.

     Some of the facts have been stipulated, and they are so

found.    The stipulation of facts and the attached exhibits are

incorporated herein by this reference.

Background

     Petitioner was employed by the Federal Government during the

period 1970 through 1988.    Petitioner has a master's degree in

library science, a master's degree in international law, and a

bachelor of laws degree.    Petitioner and his spouse (the

McGuirls) owned several businesses and rental properties during

the 1980's.

     1.    The Bankruptcy Proceeding

     The McGuirls were the subject of an involuntary petition in

bankruptcy filed under chapter 7 of the Bankruptcy Code on March

2, 1990.    The petition was filed in the U.S. Bankruptcy Court for

the District of Columbia.    The case was converted to a chapter 11

case for a short period of time in 1990, before being converted

back to a chapter 7 case.    On January 25, 1994, the bankruptcy

court denied the McGuirls a discharge in the bankruptcy

proceeding.3


     3
          With certain exceptions, the filing of a petition under
the Bankruptcy Code operates as a stay of any civil action or
proceeding concerning the debtor or the debtor's property. 11
                                                   (continued...)
                               - 4 -

     On August 4, 1995, the trustee of the bankruptcy estate

filed a proposed final account with the bankruptcy court.     On

August 7, 1995, the trustee filed a final report with the

bankruptcy court.   On August 24, 1995, the McGuirls filed an

objection to the proposed final account.    On October 13, 1995,

the bankruptcy court approved the trustee's final application for

compensation and ordered the final distribution of funds on hand

in petitioner's bankruptcy estate.

     Petitioner subsequently appealed the order providing for the

trustee's compensation and fees that were approved by the

bankruptcy court.   At the time of trial on the matter before us:

(1) Undisbursed funds remained in the bankruptcy estate's

account; (2) the bankruptcy court had not discharged the trustee

of the estate, nor had the bankruptcy court ordered the estate

closed; and (3) the estate in petitioner's bankruptcy case

remained open pending the conclusion of litigation between the

McGuirls and the trustee of the bankruptcy estate.

     2.   The Proceeding in the Tax Court

     Respondent issued a statutory notice of deficiency to

petitioner for the 1993 taxable year on February 20, 1996.4     The


     3
      (...continued)
U.S.C. 362(a), (b) (1994); In re Krystal Cadillac Oldsmobile GMC
Truck, Inc., 142 F.3d 631, 637 (3d Cir. 1998). The stay is
lifted upon the earlier of the closing of the case, the dismissal
of the case, or upon the granting or denial of a discharge. 11
U.S.C. 362(c)(2) (1994); Guerra v. Commissioner, 110 T.C. 271,
275 (1998).
     4
           Respondent issued separate statutory notices of
                                                    (continued...)
                                - 5 -

notice of deficiency was based on a substitute for return

prepared by respondent, as petitioner had not filed a 1993

Federal income tax return at the time.    Respondent determined a

deficiency in petitioner's income tax, an addition to tax under

section 6651(a) for failure to file a return, and an addition to

tax under section 6654(a) for failure to make estimated tax

payments.

     On May 20, 1996, a petition was filed with this Court.

Petitioner asserted, among other things, that this Court did not

have jurisdiction over him due to the chapter 7 bankruptcy

proceeding.    On June 7, 1996, petitioner filed a motion to

dismiss the petition for lack of jurisdiction.    On August 7,

1996, we denied petitioner's motion, as the stay imposed under 11

U.S.C. sec. 362(a) (1994) was no longer in effect due to the

denial of petitioner's discharge in bankruptcy on January 25,

1994.    On August 14, 1996, petitioner submitted to the Internal

Revenue Service a joint Federal income tax return for the taxable

year 1993, reporting income in the amount of $138,990.5   On

November 15, 1996, petitioner filed an amended petition with this

Court.    On December 27, 1996, respondent filed an answer to the

amended petition, claiming an increased deficiency and increased

     4
      (...continued)
deficiency to both petitioner and his spouse, Marlene McGuirl,
for the taxable year 1993. Marlene McGuirl has not petitioned
this Court.
     5
            The amount of income reported on the return is not in
dispute.
                               - 6 -

additions to tax based on the submitted return.6       In an amended

answer to the amended petition, respondent asserted an additional

increase in deficiency and additions to tax.7

     3.   Tax Return Information

     The pertinent information in this record regarding

petitioner's Federal income tax returns is as follows:

                                                       Year From Which
Tax Year1 Date Filed   NOL Claimed     NOL Carryover     NOL Claimed2

  1984      ---           ---             ---             ---
  1985      ---           ---             ---             ---
  1986      timely        $17,501         ---             ---
  1987      5/5/88         57,738         ---             ---
  1988      timely        194,301         ---             ---
  1989      1/22/97       873,917         ---             ---
  1990      timely         11,163         ---             ---
  1991      timely         ---            $22,331         1986
  1992      8/30/96        ---             59,669         1987/1988
  1993      8/14/96        ---            114,000         1987/1988
     1
        Petitioner filed joint income tax returns with his spouse
for all tax years in question.
     2
        Information relating to petitioner's 1984 and 1985 tax
years has not been made part of this record.




     6
          Respondent bears the burden of proof on any increase in
deficiency. Rule 142(a). The increase in deficiency is based on
the amount of income reported on petitioner's delinquent 1993
income tax return, filed after the petition was filed in this
case. Since petitioner has reported the income and does not
otherwise dispute the receipt of the income as reported,
respondent's burden of proof has been met.
     7
          Respondent subsequently conceded the item of income
resulting in the request for an increase in deficiency, along
with additional Schedule A itemized deductions claimed by
petitioner. Respondent's burden of proof on this increase in
deficiency is therefore not an issue.
                                  - 7 -

Discussion

     1.   Net Operating Loss Carryover From 1988 Taxable Year

           A.   Section 172

     In general, section 172 allows a deduction for an amount

equal to the aggregate of the net operating loss carryover to a

taxable year plus the net operating loss carryback to that year.

Sec. 172(a).    Section 172(b), as in effect for the year in issue,

required that a net operating loss first be carried back to each

of the 3 previous taxable years and, if unabsorbed by those

years, that the remaining portion be carried forward to the 15

following taxable years.      Sec. 172(b)(1) and (2).

     Section 172(b)(3), however, provides that a taxpayer may

elect to relinquish the entire carryback period and carry forward

the loss to the taxable years following the loss year.     That

section further provides that:

     Such election shall be made in such manner as may be
     prescribed by the Secretary, and shall be made by the
     due date (including extensions of time) for filing the
     taxpayer's return for the taxable year of the net
     operating loss for which the election is to be in
     effect. Such election, once made for any taxable year,
     shall be irrevocable for such taxable year.

     Respondent contends that petitioner is precluded from

claiming a net operating loss carryover from taxable year 1987 or

1988 because petitioner has not filed an election as required

under section 172(b)(3) to waive the 3-year carryback period.

Petitioner did not file an election under section 172(b)(3) which

would permit the carry forward of any unabsorbed net operating

losses to the taxable year 1993.      If the election under section
                                 - 8 -

172(b)(3) is not made, section 172(b)(2) provides that a

carryover is allowable only to the extent that the loss exceeds

the taxable income for the years of a carryback, regardless of

whether a carryback was in fact claimed.       Lone Manor Farms, Inc.

v. Commissioner, 61 T.C. 436, 441-442 (1974), affd. without

published opinion 510 F.2d 970 (3d Cir. 1975); sec. 1.172-4(b)(1)

and (2), Income Tax Regs.

     Since petitioner did not make an election under section

172(b)(3) to carry over his net operating losses to subsequent

tax years, the net operating loss claimed for 1987 would have to

be carried back to taxable year 1984 before carrying any unused

portion of the net operating loss forward.      Also, the net

operating loss claimed for 1988 would have to be carried back to

taxable year 1985 before carrying any unused portion of the net

operating loss forward.

     In the instant case, there is no evidence that the 1987 or

1988 net operating loss would not have been absorbed through the

operation of the 3-year carryback.       We agree with respondent and

conclude that petitioner is not entitled to the claimed net

operating loss carryover.

          B.    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, inter alia, any net operating loss carryovers

of the debtor.    Sec. 1398(g).   In addition, section 1398 provides

that the debtor shall succeed to, inter alia, any remaining net

operating loss carryovers of the bankruptcy estate upon the

termination of the estate.     Sec. 1398(i).

       A bankruptcy estate is created in an involuntary case upon

the filing of the petition with the bankruptcy court.     Bankruptcy

Code, 11 U.S.C. sec. 303 (1978).     At that time, certain tax

attributes, including any net operating losses, determined as of

the first day of the debtor-taxpayer's taxable year in which the

bankruptcy case commences, become part of the estate, and no

longer belong to the debtor-taxpayer.     Sec. 1398(g); Kahle v.

Commissioner, T.C. Memo. 1997-91.

       Any remaining net operating loss belonging to the estate

will be returned to the debtor-taxpayer after the termination of

the estate.    Sec. 1398(i).   "Termination of the estate" refers to

the closing of the estate.     Bankruptcy Code, 11 U.S.C. sec.

346(i)(2) (1978); see also Firsdon v. United States, 95 F.3d 444,

446 (6th Cir. 1996), affg. 75 AFTR 2d 95-528, 95-1 USTC par.

50,040 (N.D. Ohio 1994); Beery v. Commissioner, T.C. Memo. 1996-

464.    The debtor is then free to use the net operating loss as a

carryover, sec. 1398(i), or carryback, as long as the net

operating loss arose before the commencement of the bankruptcy

case.    Sec. 1398(j)(2)(B).
                              - 10 -

     Respondent contends that, even if petitioner were able to

satisfy the requirements of section 172, petitioner would be

barred from claiming the net operating loss carryover due to the

provisions of section 1398.   Petitioner contends the bankruptcy

estate was terminated in October 1995 when the bankruptcy court

ordered the final distribution of funds on hand in petitioner's

bankruptcy estate.   At that time, the trustee had previously

filed a final report with the bankruptcy court.   Hence,

petitioner claims he is entitled to utilize the net operating

losses remaining in the bankruptcy estate for his 1993 taxable

year.8   For the reasons discussed below, we find that the

bankruptcy estate has not terminated, and we hold that petitioner

was not yet entitled to utilize any net operating losses

remaining in the bankruptcy estate as provided under section

1398(i).

     As stated above, the termination of the estate is the

equivalent of the closing of the estate.   In order for a

bankruptcy estate to be closed, upon the full administration of

the estate and the discharge of the trustee, the bankruptcy court

issues a final decree closing the case.    11 U.S.C. 350(a) (1994).

Although the trustee filed his final report on August 7, 1995,

and no objections to that report had been filed, a final decree



     8
          The reasoning behind petitioner's contention that he is
entitled to utilize the losses as a carry forward to his 1993 tax
year is that he filed his 1993 tax return in Aug. 1996. If the
bankruptcy case terminated in Oct. 1995, the losses would be
available after that date for his use.
                               - 11 -

closing the case had not been issued by the bankruptcy court as

of the date of this trial.    The bankruptcy case was still open at

the time petitioner filed his 1993 return and at the time of

trial.    Thus, the net operating losses were property of the

bankruptcy estate.

           C.   Other Loss Issues

     Because of our findings and conclusions above, we need not

consider the additional issues of:      (1) Whether petitioner has

substantiated the expenses generating the losses that petitioner

seeks to carry forward, and (2) whether petitioner is otherwise

entitled to deduct such expenses under the Internal Revenue Code.

     2.    Section 6651(a) Addition to Tax

     Respondent determined that petitioner is liable for the

addition to tax under section 6651(a) for failure to file a

timely return for the 1993 taxable year.      Generally, individual

income tax returns must be filed on or before the 15th day of

April following the close of the calendar year.      Sec. 6072(a).

Section 6081, however, provides that the Secretary may grant a

taxpayer an extension to file for no greater than 6 months.

Section 1.6081-4(a), Income Tax Regs., provides that taxpayers,

upon meeting certain requirements, shall be allowed an automatic

4-month extension.    A taxpayer may seek an additional 2-month

extension by submitting, to the internal revenue officer with

whom the return is required to be filed, a signed Form 2688 or a

letter setting forth the full reasons for the extension.

Schafler v. Commissioner, T.C. Memo. 1998-86; Perry v.
                              - 12 -

Commissioner, T.C. Memo. 1990-228; sec. 1.6081-1(b)(1), (5),

Income Tax Regs.

     Section 6651(a)(1) provides for an addition to tax for

failure to file a timely return.   The addition to tax is equal to

5 percent of the amount required to be shown as tax on the

return, with an additional percent for each additional month or

fraction thereof that the return is filed late, not exceeding 25

percent in the aggregate.   For purposes of determining the number

of months in which the return is filed late, the date of filing

is the date on which the return is received by the Commissioner.

Schafler v. Commissioner, supra; Pryor v. Commissioner, T.C.

Memo. 1994-287.

     A taxpayer may avoid the addition to tax by establishing

that the failure to file a timely return was due to reasonable

cause and not willful neglect.   Rule 142(a); United States v.

Boyle, 469 U.S. 241, 245-246 (1985).     A failure to file is due to

"reasonable cause" if the taxpayer exercised ordinary business

care and prudence and was, nevertheless, unable to file his

return within the date prescribed by law.     Crocker v.

Commissioner, 92 T.C. 899, 913 (1989); Estate of Vriniotis v.

Commissioner, 79 T.C. 298, 310 (1982); sec. 301.6651-1(c)(1),

Proced. & Admin. Regs.   Willful neglect is viewed as a conscious,

intentional failure or reckless indifference to the obligation to

file.   United States v. Boyle, supra.    Whether petitioner has

sufficiently shown reasonable cause and no willful neglect is a

question of fact to be decided on the entire record.       Estate of
                               - 13 -

Duttenhofer v. Commissioner, 49 T.C. 200, 204 (1967), affd. per

curiam 410 F.2d 302 (6th Cir. 1969).

     Petitioner asserts that reasonable cause existed with

respect to his failure to file a timely return.     Petitioner

contends that, since 1993 was a postbankruptcy petition year, the

documents petitioner needed to file the return were in the

possession of the bankruptcy trustee.     As such, petitioner did

not have access to the documents.

     Despite petitioner's assertion, there is nothing in the

record to suggest petitioner ever attempted to file a timely

return.    Petitioner never requested an extension to file his

return as provided under section 6081.     Furthermore, there is no

evidence in the record that petitioner requested the trustee to

provide him access to, or copies of, such records.     In addition,

we note petitioner's 1990 and 1991 taxable years were post-

bankruptcy petition tax years.    However, petitioner's 1990 and

1991 tax returns were timely filed.     Accordingly, we hold

petitioner is liable for the addition to tax under section

6651(a).

     3.    Section 6654(a) Addition to Tax

     Respondent determined an addition to tax against petitioner

under section 6654(a) for failure to make timely estimated tax

payments.    This addition to tax is mandatory and cannot be waived

due to reasonable cause.    Recklitis v. Commissioner, 91 T.C. 874,

913 (1988); Grosshandler v. Commissioner, 75 T.C. 1, 21 (1980);

Estate of Ruben v. Commissioner, 33 T.C. 1071, 1072 (1960); sec.
                                - 14 -

1.6654-1(a), Income Tax Regs.    However, no addition to tax is

imposed under section 6654(a) if one of the exceptions set forth

in section 6654(e) is satisfied.

     Under section 6654(e)(2), no addition to tax is imposed

under section 6654(a) if:   (1) The taxpayer's preceding taxable

year was a taxable year of 12 months; (2) the taxpayer did not

have any tax liability for the preceding taxable year; and (3)

the taxpayer was a citizen or resident of the United States

throughout the preceding taxable year.    Petitioner's 1992 taxable

year was a taxable year of 12 months.    Petitioner's joint Federal

income tax return for the taxable year 1992, as stipulated to by

the parties, reflects zero tax liability.    In addition,

petitioner was a resident of the United States throughout 1992.

Consequently, the exception under section 6654(e)(2) applies with

respect to the 1993 taxable year.    We hold that petitioner is not

liable for the addition to tax under section 6654(a).

     We have considered all of petitioner's arguments and, to the

extent not discussed above, find them to be without merit.

     To reflect the foregoing,

                                          Decision will be entered

                                     under Rule 155.
