
From the U.S. Code Online via GPO Access
[wais.access.gpo.gov]
[Laws in effect as of January 2, 2001]
[Document not affected by Public Laws enacted between
  January 2, 2001 and January 28, 2002]
[CITE: 26USC1398]

 
                     TITLE 26--INTERNAL REVENUE CODE
 
                        Subtitle A--Income Taxes
 
                  CHAPTER 1--NORMAL TAXES AND SURTAXES
 
                      Subchapter V--Title 11 Cases
 
Sec. 1398. Rules relating to individuals' title 11 cases


(a) Cases to which section applies

    Except as provided in subsection (b), this section shall apply to 
any case under chapter 7 (relating to liquidations) or chapter 11 
(relating to reorganizations) of title 11 of the United States Code in 
which the debtor is an individual.

(b) Exceptions where case is dismissed, etc.

         (1) Section does not apply where case is dismissed

        This section shall not apply if the case under chapter 7 or 11 
    of title 11 of the United States Code is dismissed.

           (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.

(c) Computation and payment of tax; basic standard deduction

                 (1) Computation and payment of tax

        Except as otherwise provided in this section, the taxable income 
    of the estate shall be computed in the same manner as for an 
    individual. The tax shall be computed on such taxable income and 
    shall be paid by the trustee.

                            (2) Tax rates

        The tax on the taxable income of the estate shall be determined 
    under subsection (d) of section 1.

                    (3) Basic standard deduction

        In the case of an estate which does not itemize deductions, the 
    basic standard deduction for the estate for the taxable year shall 
    be the same as for a married individual filing a separate return for 
    such year.

(d) Taxable year of debtors

                          (1) General rule

        Except as provided in paragraph (2), the taxable year of the 
    debtor shall be determined without regard to the case under title 11 
    of the United States Code to which this section applies.

     (2) Election to terminate debtor's year when case commences

        (A) In general

            Notwithstanding section 442, the debtor may (without the 
        approval of the Secretary) elect to treat the debtor's taxable 
        year which includes the commencement date as 2 taxable years--
                (i) the first of which ends on the day before the 
            commencement date, and
                (ii) the second of which begins on the commencement 
            date.

        (B) Spouse may join in election

            In the case of a married individual (within the meaning of 
        section 7703), the spouse may elect to have the debtor's 
        election under subparagraph (A) also apply to the spouse, but 
        only if the debtor and the spouse file a joint return for the 
        taxable year referred to in subparagraph (A)(i).

        (C) No election where debtor has no assets

            No election may be made under subparagraph (A) by a debtor 
        who has no assets other than property which the debtor may treat 
        as exempt property under section 522 of title 11 of the United 
        States Code.

        (D) Time for making election

            An election under subparagraph (A) or (B) may be made only 
        on or before the due date for filing the return for the taxable 
        year referred to in subparagraph (A)(i). Any such election, once 
        made, shall be irrevocable.

        (E) Returns

            A return shall be made for each of the taxable years 
        specified in subparagraph (A).

        (F) Annualization

            For purposes of subsections (b), (c), and (d) of section 
        443, a return filed for either of the taxable years referred to 
        in subparagraph (A) shall be treated as a return made under 
        paragraph (1) of subsection (a) of section 443.

                    (3) Commencement date defined

        For purposes of this subsection, the term ``commencement date'' 
    means the day on which the case under title 11 of the United States 
    Code to which this section applies commences.

(e) Treatment of income, deductions, and credits

                (1) Estate's share of debtor's income

        The gross income of the estate for each taxable year shall 
    include the gross income of the debtor to which the estate is 
    entitled under title 11 of the United States Code. The preceding 
    sentence shall not apply to any amount received or accrued by the 
    debtor before the commencement date (as defined in subsection 
    (d)(3)).

                (2) Debtor's share of debtor's income

        The gross income of the debtor for any taxable year shall not 
    include any item to the extent that such item is included in the 
    gross income of the estate by reason of paragraph (1).

         (3) Rule for making determinations with respect to 
                  deductions, credits, and employment taxes

        Except as otherwise provided in this section, the determination 
    of whether or not any amount paid or incurred by the estate--
            (A) is allowable as a deduction or credit under this 
        chapter, or
            (B) is wages for purposes of subtitle C,

    shall be made as if the amount were paid or incurred by the debtor 
    and as if the debtor were still engaged in the trades and 
    businesses, and in the activities, the debtor was engaged in before 
    the commencement of the case.

(f) Treatment of transfers between debtor and estate

          (1) Transfer to estate not treated as disposition

        A transfer (other than by sale or exchange) of an asset from the 
    debtor to the estate shall not be treated as a disposition for 
    purposes of any provision of this title assigning tax consequences 
    to a disposition, and the estate shall be treated as the debtor 
    would be treated with respect to such asset.

         (2) Transfer from estate to debtor not treated as 
                                 disposition

        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.

(g) Estate succeeds to tax attributes of debtor

    The estate shall succeed to and take into account the following 
items (determined as of the first day of the debtor's taxable year in 
which the case commences) of the debtor--

                  (1) Net operating loss carryovers

        The net operating loss carryovers determined under section 172.

               (2) Charitable contributions carryovers

        The carryover of excess charitable contributions determined 
    under section 170(d)(1).

                  (3) Recovery of tax benefit items

        Any amount to which section 111 (relating to recovery of tax 
    benefit items) applies.

                     (4) Credit carryovers, etc.

        The carryovers of any credit, and all other items which, but for 
    the commencement of the case, would be required to be taken into 
    account by the debtor with respect to any credit.

                     (5) Capital loss carryovers

        The capital loss carryover determined under section 1212.

         (6) Basis, holding period, and character of assets

        In the case of any asset acquired (other than by sale or 
    exchange) by the estate from the debtor, the basis, holding period, 
    and character it had in the hands of the debtor.

                      (7) Method of accounting

        The method of accounting used by the debtor.

                        (8) Other attributes

        Other tax attributes of the debtor, to the extent provided in 
    regulations prescribed by the Secretary as necessary or appropriate 
    to carry out the purposes of this section.

(h) Administration, liquidation, and reorganization expenses; carryovers 
        and carrybacks of certain excess expenses

    (1) Administration, liquidation, and reorganization expenses

        Any administrative expense allowed under section 503 of title 11 
    of the United States Code, and any fee or charge assessed against 
    the estate under chapter 123 of title 28 of the United States Code, 
    to the extent not disallowed under any other provision of this 
    title, shall be allowed as a deduction.

    (2) Carryback and carryover of excess administrative costs, 
                        etc., to estate taxable years

        (A) Deduction allowed

            There shall be allowed as a deduction for the taxable year 
        an amount equal to the aggregate of (i) the administrative 
        expense carryovers to such year, plus (ii) the administrative 
        expense carrybacks to such year.

        (B) Administrative expense loss, etc.

            If a net operating loss would be created or increased for 
        any estate taxable year if section 172(c) were applied without 
        the modification contained in paragraph (4) of section 172(d), 
        then the amount of the net operating loss so created (or the 
        amount of the increase in the net operating loss) shall be an 
        administrative expense loss for such taxable year which shall be 
        an administrative expense carryback to each of the 3 preceding 
        taxable years and an administrative expense carryover to each of 
        the 7 succeeding taxable years.

        (C) Determination of amount carried to each taxable year

            The portion of any administrative expense loss which may be 
        carried to any other taxable year shall be determined under 
        section 172(b)(2), except that for each taxable year the 
        computation under section 172(b)(2) with respect to the net 
        operating loss shall be made before the computation under this 
        paragraph.

        (D) Administrative expense deductions allowed only to estate

            The deductions allowable under this chapter solely by reason 
        of paragraph (1), and the deduction provided by subparagraph (A) 
        of this paragraph, shall be allowable only to the estate.

(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.

(j) Other special rules

          (1) Change of accounting period without approval

        Notwithstanding section 442, the estate may change its annual 
    accounting period one time without the approval of the Secretary.

                 (2) Treatment of certain carrybacks

        (A) Carrybacks from estate

            If any carryback year of the estate is a taxable year before 
        the estate's first taxable year, the carryback to such carryback 
        year shall be taken into account for the debtor's taxable year 
        corresponding to the carryback year.

        (B) Carrybacks from debtor's activities

            The debtor may not carry back to a taxable year before the 
        debtor's taxable year in which the case commences any carryback 
        from a taxable year ending after the case commences.

        (C) Carryback and carryback year defined

            For purposes of this paragraph--
            (i) Carryback

                The term ``carryback'' means a net operating loss 
            carryback under section 172 or a carryback of any credit 
            provided by part IV of subchapter A.
            (ii) Carryback year

                The term ``carryback year'' means the taxable year to 
            which a carryback is carried.

(Added Pub. L. 96-589, Sec. 3(a)(1), Dec. 24, 1980, 94 Stat. 3397; 
amended Pub. L. 99-514, title I, Sec. 104(b)(14), title XIII, 
Sec. 1301(j)(8), title XVIII, Sec. 1812(a)(5), Oct. 22, 1986, 100 Stat. 
2105, 2658, 2833.)

                       References in Text

    Part IV of subchapter A, referred to in subsec. (j)(2)(C)(i), 
probably means part IV of subchapter A of chapter 1 of this title.


                               Amendments

    1986--Subsec. (c). Pub. L. 99-514, Sec. 104(b)(14)(A), substituted 
``basic standard deduction'' for ``zero bracket amount'' in heading.
    Subsec. (c)(3). Pub. L. 99-514, Sec. 104(b)(14)(B), amended par. (3) 
generally, substituting ``Basic standard deduction'' for ``Amount of 
zero bracket amount'' in heading and substituting ``In the case of an 
estate which does not itemize deductions, the basic standard deduction 
for the estate'' for ``The amount of the estate's zero bracket amount'' 
in text.
    Subsec. (d)(2)(B). Pub. L. 99-514, Sec. 1301(j)(8), substituted 
``section 7703'' for ``section 143''.
    Subsec. (g)(3). Pub. L. 99-514, Sec. 1812(a)(5), amended par. (3) 
generally. Prior to amendment, par. (3), recovery exclusion, read as 
follows: ``Any recovery exclusion under section 111 (relating to 
recovery of bad debts, prior taxes, and delinquency amounts).''


                    Effective Date of 1986 Amendment

    Amendment by section 104(b)(14) of Pub. L. 99-514 applicable to 
taxable years beginning after Dec. 31, 1986, see section 151(a) of Pub. 
L. 99-514, set out as a note under section 1 of this title.
    Amendment by section 1301(j)(8) of Pub. L. 99-514 applicable to 
bonds issued after Aug. 15, 1986, except as otherwise provided, see 
sections 1311 to 1318 of Pub. L. 99-514, set out as an Effective Date; 
Transitional Rules note under section 141 of this title.
    Amendment by section 1812(a)(5) of Pub. L. 99-514 effective, except 
as otherwise provided, as if included in the provisions of the Tax 
Reform Act of 1984, Pub. L. 98-369, div. A, to which such amendment 
relates, see section 1881 of Pub. L. 99-514, set out as a note under 
section 48 of this title.


                             Effective Date

    Subchapter applicable to bankruptcy cases commencing more than 90 
days after Dec. 24, 1980, see section 7(b) of Pub. L. 96-589, set out as 
an Effective Date of 1980 Amendment note under section 108 of this 
title.


           Plan Amendments Not Required Until January 1, 1989

    For provisions directing that if any amendments made by subtitle A 
or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or title XVIII 
[Secs. 1800-1899A] of Pub. L. 99-514 require an amendment to any plan, 
such plan amendment shall not be required to be made before the first 
plan year beginning on or after Jan. 1, 1989, see section 1140 of Pub. 
L. 99-514, as amended, set out as a note under section 401 of this 
title.

                  Section Referred to in Other Sections

    This section is referred to in sections 108, 443, 1399, 6103 of this 
title.
