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partner and his bankruptcy estate. This stands to reason, as such a suballocation will have no effect on the remaining partners. The subdivision of partnership tax items between the two related but independently taxed entities is thus not a determination "required to be taken into account for the partnership's taxable year" as contemplated by section 6231(a)(3).

5. Conclusion as to Jurisdictional Issue

We hold that the manner in which the distributive share of a partner in bankruptcy is allocated between the partner in his individual capacity and his bankruptcy estate is not a partnership item under the TEFRA procedures. Accordingly, the merits of such an allocation need not be resolved in a partnership-level proceeding but rather may be resolved in a proceeding at the partner level such as the present one.10 Petitioners' motion to dismiss for lack of jurisdiction will be denied.

B. Parties' Cross-Motions for Summary Judgment

The parties have each moved for summary judgment with respect to whether the prepetition partnership losses were to be reported by Mr. Katz or his bankruptcy estate. Summary judgment may be granted only if it is demonstrated that no genuine issue exists as to any material fact and that a decision may be entered as a matter of law. See Rule 121(b); Sundstrand Corp. v. Commissioner, 98 T.C. 518, 520 (1992), affd. 17 F.3d 965 (7th Cir. 1994). As there exists no factual dispute pertaining to the disputed allocation, we shall address the legal issue before us.

Gross income of a bankruptcy estate is defined as the gross income of the debtor to which the estate is entitled pursuant to the U.S. Bankruptcy Code. See sec. 1398(e)(1). Under bankruptcy law, the bankruptcy estate is entitled to the income generated by property of the estate, see 11 U.S.C. sec. 541(a)(6), and a debtor's partnership interest becomes prop

9 This fact will be illustrated in our discussion infra of the merits of the allocation of the prepetition partnership losses as between Mr. Katz and his bankruptcy estate.

10 We note that our holding is consistent with Gulley v. Commissioner, T.C. Memo. 2000-190, which addressed in a partner-level proceeding the proper allocation of partnership losses between a taxpayer in bankruptcy and the taxpayer's bankruptcy estate. The jurisdictional issue, however, was not addressed in that case.

erty of the estate upon the filing of the bankruptcy petition, see id. sec. 541(a)(1). Gross income of the estate, however, does not include amounts received or accrued by the debtor prior to the commencement of the bankruptcy proceeding. See sec. 1398(e)(1). Gross income of the debtor is that which remains after excluding those items which are included in gross income of the estate. See sec. 1398(e)(2).

With section 1398 in mind, we turn to the relevant provisions governing the income taxation of partners and partnerships. A partner must include in gross income his share of income, gain, loss, deduction, or credit for any taxable year of the partnership ending with or within the partner's taxable year. See sec. 706(a); see also sec. 1.706–1(a)(1), Income Tax Regs. The critical date under this provision is the last day of the partnership taxable year, for it is on this day that the partner is treated as receiving his share of the aforementioned partnership tax items. See Gulley v. Commissioner, T.C. Memo. 2000-190.

1. Respondent's Position

Respondent contends that the general rules recited above are sufficient to determine the proper reporting of the prepetition partnership losses as between Mr. Katz individually and Mr. Katz' bankruptcy estate. Respondent's two-step analysis proceeds as follows: First, under section 706(a), the partnerships are treated as distributing Mr. Katz' 1990 distributive share of partnership tax items on December 31, 1990, the last day of the taxable year of each such partnership. Second, given that Mr. Katz' bankruptcy estate succeeded to the partnership interests on July 5, 1990, and held beneficial ownership of such interests on December 31, 1990, all the 1990 calendar year distributive shares (which include the prepetition partnership losses) belonged to and were reportable by Mr. Katz' bankruptcy estate under section 1398(e)(1). Respondent's analysis is consistent with the treatment of the issue in 15 Sheinfeld et al., Collier on Bankruptcy, par. TX13.04[2][d] (15th ed. rev. 2000):

Thus, the partnership would allocate the entire year's income or loss to the person who is the partner on the last day of the partnership's taxable year. If the debtor partner's bankruptcy estate still exists when the partner

ship's taxable year ends, the estate, not the debtor partner, would receive the allocation. *** [Fn. ref. omitted.]

Petitioners argue that respondent's analysis is flawed. Petitioners invoke several Code provisions which they contend require a partnership to allocate to a partner in bankruptcy the portion of his distributive share for the partnership taxable year which is attributable to the period prior to the commencement of the partner's bankruptcy proceeding. We address these arguments below.

2. Petitioners' Arguments under Section 1398

a. Section 1398(d)(2)

Petitioners contend that the failure to allocate the prepetition partnership losses to Mr. Katz individually is tantamount to forcing a section 1398(d)(2) short taxable year election upon Mr. Katz with respect to his partnership interests. Pursuant to section 1398(d)(2), a debtor may elect to divide the taxable year in which he files bankruptcy into 2 short years, the first of which ends on the day prior to the commencement of the bankruptcy proceeding and the second of which begins on the bankruptcy commencement date.11 If, however, the debtor declines to make the section 1398(d)(2) election, the debtor's taxable year is determined without regard to the bankruptcy proceeding. 12 See sec. 1398(d)(1).

Petitioners contend that, even though Mr. Katz chose not to make the section 1398(d)(2) election, the allocation of the prepetition partnership losses to his bankruptcy estate effectively forces such an election upon him. Petitioners' argument proceeds along the following lines: First, had Mr. Katz made the section 1398(d)(2) election, the prepetition partner

11 A debtor's Federal income tax liabilities attributable to taxable years which have closed prior to the commencement of the bankruptcy proceeding are assumed by and collectible from the bankruptcy estate. See 11 U.S.C. sec. 101(10) (1994) (definition of "creditor"); id. sec. 502(a) (general rule regarding allowance of claims against the bankruptcy estate). Accordingly, if the debtor makes the sec. 1398(d)(2) election, his tax liability for the first short taxable year becomes an allowable claim against the bankruptcy estate as a claim arising prior to the bankruptcy filing. See In re Johnson, 190 Bankr. 724, 726 (Bankr. D. Mass. 1995); In re Moore, 132 Bankr. 533, 534 (Bankr. W.D. Pa. 1991); In re Mirman, 98 Bankr. 742, 745 (Bankr. E.D. Va. 1989); In re Turboff, 93 Bankr. 523, 525 (Bankr. S.D. Tex. 1988).

12 In the absence of a sec. 1398(d)(2) election, the debtor's tax liability for the entire year in which the bankruptcy proceeding commences is collectible directly from the debtor individually, with no portion being collectible from the bankruptcy estate. See In re Smith, 210 Bankr. 689, 692 (Bankr. D. Md. 1997); In re Johnson, supra at 726; In re Moore, supra at 534; In re Mirman, supra at 745; In re Turboff, supra at 525.

ship losses would have been allocated to Mr. Katz, thereby generating an NOL for the first short taxable year. Second, as a consequence to the making of the section 1398(d)(2) election, the bankruptcy estate would have succeeded to Mr. Katz' NOL carryovers that existed as of July 5, 1990 (the first day of the second short taxable year), pursuant to section 1398(g)(1). Third, since the allocation of the prepetition partnership losses directly to the estate has the same result as allowing those losses to be inherited by the estate through the NOL carryover, the allocation of those losses to Mr. Katz' bankruptcy estate is the equivalent of Mr. Katz' making the section 1398(d)(2) short-year election.

Petitioners' argument is flawed in a number of respects, with the principal error lying in the first assumption-that the prepetition partnership losses would have been allocated to Mr. Katz individually under section 1398(e) had he made the section 1398(d)(2) short-year election. Under section 706(a), a partner's share of partnership loss is distributed as of the last day of the taxable year of the partnership. Given that section 1398(d)(2) affects only the taxable year of the partner, the short-year election has no effect on the date on which the partnership loss is deemed to be distributed by the partnership. In other words, even if Mr. Katz had made the section 1398(d)(2) election, the prepetition partnership losses would not have been distributed by the partnerships until the close of the respective partnership taxable years pursuant to section 706(a). See Purintun, "Partnerships and Partners in Bankruptcy", 11 J. Partnership Taxn. 342, 346 (1995) ("whether or not the debtor partner makes the short taxable year election, the distributive share of income or loss from the entire partnership taxable year in which the partner's bankruptcy petition is filed should be included in the return of the estate"); American Bar Association Section of Taxation, "Report of the Section 108 Real Estate and Partnership Task Force: Part II", 46 Tax Law. 397, 448-449 (1993) (concluding that "when an individual files bankruptcy prior to the close of the partnership's taxable year, his bankruptcy estate would get the benefit or detriment of the partnership income or loss for the entire year" and noting that "the section 1398(d) short period election to treat the debtor's taxable year of bankruptcy filing as two taxable years would not

affect the result"). As petitioners' argument rests upon a faulty assumption, we reject it.

b. Section 1398(b)(2)

Petitioners note that section 1398(b)(2) provides that "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." Petitioners then contend that, since income or loss received during the prepetition period on property other than a partnership interest was taxable to Mr. Katz individually under section 1398(e), section 1398(b)(2) mandates that the portion of the partnership income or loss attributable to the prepetition period must also be allocated to Mr. Katz in his individual capacity.

Petitioners read section 1398(b)(2) out of context. Section 1398(b)(2) provides as follows:

(2) SECTION DOES NOT APPLY AT PARTNERSHIP LEVEL.-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. [Emphasis added.]

When read in conjunction with section 1398(a) (providing that section 1398 applies only to certain bankruptcy proceedings in which the debtor is an individual), the purpose of the first portion of section 1398(b)(2) is to render section 1398 inapplicable to a partnership in bankruptcy. The second portion of section 1398 (upon which petitioners base their argument) is properly interpreted as a clarification that even though section 1398 does not apply to a partnership in bankruptcy, it nonetheless governs the tax treatment of a partnership interest of an individual in bankruptcy. Section 1398(b)(2) is thus not intended to articulate a specific manner in which the income or loss from a partnership interest is to be divided between a partner and his bankruptcy estate. Rather, such specifics are addressed in section 1398(e). Petitioners' reliance upon section 1398(b)(2) is misplaced.

3. Petitioners' Argument Under Section 706(d)(1)

Section 706(a) provides that the distributive share of income or loss for the entire partnership taxable year is deemed to be distributed to the holder of the partnership

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