Darwin L. Richardson, and Wanda J. Richardson v. United States

Appellants, cash basis taxpayers, seek to deduct unused losses sustained by the bankruptcy trustee administering the bankrupt estate of one of them in determining their personal income tax liability for the year 1969, which was the year in which the bankruptcy proceeding terminated. The total unused losses sustained by the trustee substantially exceed the relief from indebtedness realized as the result of the bankruptcy proceeding. Appellants contend that they are entitled to utilize the losses in that they are beneficiaries of an estate or trust within the meaning of Title 26, United States Code, Section 642 (h) and are therefore entitled to unused loss carryovers and excess deductions upon the termination of the bankruptcy estate. We disagree with Appellants’ contention, and affirm the judgment of the District Court.

The provisions of Title 26, United States Code, Section 642 (h) are not applicable to bankrupt estates or to those who may bear the economic burden of their losses, whether they be creditors or bankrupts. The section is limited in its application to those whose beneficial interest in an estate or trust derives from bequest, gift, devise, or inheritance. Cf., Nemser…