*1 OF v. COMMISSIONER ux. еt JEWETT REVENUE INTERNAL 23, 1982 February 1, 1981 Decided December Argued No. 80-1614. Burger, Court, which opinion Stevens, J., delivered JJ., Powell, joined. Marshall, and White, Brennan, J., and C. Rehnquist and O’Con- opinion, in dissenting J., Blackmun, filed p. 319. post, JJ., joined, nor, With petitioners. for cause D. St. Clair argued James Gailey, Timothy H. Fabiano, G. John were briefs on the
him Christopher T. Carlson. and With for respondent. cause Smith A. argued Stuart Acting Assistant Lee, General Solicitor were brief him on Cohen.* Murray, S. Jonathan Attorney General L. Stem by Robert filed urging were curiae reversal of amid * Briefs A. Jr., Robert Parlin, Platt; C. Charles & Mayer, Brown et al. Griswold for Adelaide C. Bergquist O’Connor Geoffrey J. Liverance, Jr., and Burke, B. Wallace Coleman Executor, as Poiner, Halbach, John W. Estate Helen for the a brief filed curiae. amicus opinion delivered Court. *2 Stevens
Justice beneficiary’s accept ownership prop- A refusal to of trust erty may gift an indirect to a successor in constitute interest liability. subject gift §§2501, federal 26 U. S. C. §25.2511-l(c), Trеasury Regulation however, 2511. Under subject if such a refusal is not to tax it effective under local knowledge made “within a reasonable time after law and of petitioner The the existence of the transfer.” husband (hereafter petitioner) in this case executed disclaimers of a testamentary contingent years interest in a trust 33 after contingent. created, but while it was still interest was question presented The narrow is whether the “transfer” re- ferred to in the occurs when the interest is cre- ated, contends, as the or at a Government later time when possessory, argued by the interest either vests or becomes petitioner. Margaret grandmother, Weyerhaeuser Petitioner’s Jew- leaving ett, in 1939 died the bulk of her substantial estate testamentary will, trust. Her in Massachusetts, executed provided paid petitioner’s that the trust income should be grandfather during petitioner’s par- his life, and thereafter to Uрon surviving parent, principal ents. the death of the equal was to be divided “into shares or trusts so that there my [petitioner’s shall be one share for each child of said son living father] living then and one share for the issue then representing my App. each child of said son then dead.” 9. surviving Petitioner’s mother is the sole life tenant. Thus, testamentary plan, petitioner under if survived his corpus he mother, would receive one share of the of the trust; predeceased if he his mother, that share would be distributed petitioner’s parents to his issue. Since his children, had two of principal. share the trust amounted to one-half of the petitioner years In 1972,when was 45 old, he executed two recognized petitioner disclaimers. The disclaimers each (50%) fifty percent had “an the trust estate . . . provided that he Id., survives” his at 15. In the mother. 95% to receive his right renounced disclaimer, petitioner first (50%) remainder fifty percent the аforesaid “of his right renounced he second ibid.; in the estate,” trust exceeded value 5%. remaining million. $8 third for the tax returns gift filed wife Petitioner the Com- advised they of 1972 fourth quarters as tax- them treat did disclaimers, but missioner deficiency ap- assessed Commissioner gifts.1 able disclaimers He concluded $750,000. proximately the mean- within transfers indirect were Revenue 2511(a)3 Internal 2501(a)(1)2 and §§ ing *3 Treas. under tax excepted not were they and that Code, a “within made not were §25.2511-l(c)4 they because Reg. 1 gifts the to treat Jewett, to consent elected wife, M. Lucille Petitioner’s the to and wife husband by both made having been as by husband her made A-20. for Cert. to Pet. App. by law. allowed extent 2 hereby imposed 2502, is section in provided tax, computed “A calen during such gift by property of transfer on the quarter calendar each U. S. C. 26 nonresident.” or resident any individual quarter dar 12501(a)(1). imposed the chapter, in this contained “Subject to the limitаtions otherwise, or in trust is transfer the whether apply shall section or is real property the indirect, and whether or is gift direct the whether a citi not a nonresident of the in case intangible; but tangible or personal, is property only the if to a apply transfer States, shall United of the zen 2511(a). § S. C. 26 U. States.” United the within situated Thus, transac all indirectly made. gifts applies to tax also gift “The gratuitously are interests rights or property or whereby property tions em or device means another, of the regardless upon or conferred passed Where §25.2512-8. further See subject to tax. gifts ployed, constitute a bene gives estate decedent’s of governing administration law refuse unqualifiedly completely and right to a heir, ficiary, or next-of-kin (whether the decedent from a transferred ownership property accept dis and of descent law by the will or by the decedent’s is effected transfer not con ownership does accept a refusal property), of intestate tribution time reasonable a within made is refusal gift if the making of a stitute be must refusal the transfer. existence knowledge of the after trans- knowledge” grandmother’s after time reasonable estate. Petitioner then him an interest fer to a seeking redetermination of Tax Court filed this action deficiency. of Appeals, in the Court petitioner In Tax Court disclaimers were made he had the time that at argued trust, interest and that contingent than a more nothing in which a tax-free disclaimer could be time” “reasonable to run until the became vested not begin made did the last life the death of tena surviving upon and possessory had been argument accepted a comparable nt.5 Although effective under the local law. There can be no re- unequivocable [sic] acceptance.. its Where the locаl law ownership property after fusal of heir, refusal, any disposition by beneficiary, or permit does such a ownership gratuitously to another con- whereby is transferred next-of-kin heir, beneficiary, or next-of-kin. In making of a stitutes the only part prop- any purported to relate to a case where a refusal complete has erty, of whether or not there been a the determination accept ownership depend will on all of the facts and unqualified refusal to case, taking recognition account the particular in each into circumstances law. In the purported refusal under the local and effectiveness such accept if a trans- contrary, person fails to refuse to absence facts to time ownership of a decedent’s within a reasonable fer to him of transfer, have learning presumed he will be after of the existence illustratiоn, to A if Blackacre was devised accepted property. *4 (which lapsed legacies and provided under the decedent’s will also that all B, law A go residuary beneficiary), and under local devises shall to the accept would be considered ownership could refuse to which case title A, reason- having passed accept within a never to A’s refusal to Blackacre by making gift a learning able time of of the devise will not constitute the However, A with to B. if died intestate a decedent who owned Greenacre can- only heirs, D intestate C and as his law the heir of an and under local not, intes- by becoming owner of accept, prevent refusal to an himself it is property, any (by tate term gratuitous disposition by whatever C known) Dand whereby gives up ownership portion he of a of Greenacre by to D.” acquires gift C making the whole thereof constitutes the (1981). §25.2511-l(c) § Reg. 25.2511-l(c), Treas. 26 CFR 5 in the Court, As did the interest petitioner’s Tax we assume that Although that inter properly is contingent characterized as a remainder. is divestiture, arguably est is the distinction subject a vested remainder to
309 v. in Keinath Eighth Circuit the for Appeals by Court rejected (1973),6 was it 2d 57 F. 480 Commissioner, We case. this Circuit8 Ninth and Court7 Tax 904. 452 U. S. conflict. resolve granted certiorari Treas- of the language plain heavily on relies Petitioner its influenced that early decisions on Regulation and ury history, its language and analyzing that Before draftsmen. statutory provisions review appropriate to isit interprets. I imposes a Code 2501(a)(1) Revenue Internal Section 2511(a) by gift.” Section property transfer “on the tax or direct apply “whether shall tax provides tangi- personal, or real property is whether indirect, and Reports House10 and Senate9 intangible.” As or ble explain: ‘indirectly’ ‘gift,’ and ‘transfer,’ ‘property,’ “The terms sense; comрrehensive most broadest in the used
are right in- or every species of reaching ‘property’ the term exchangeable having an law protected terest value.” Court 180, the U. S. Shaughnessy, 318 v. In Smith ‘property statute, gift tax language “[t]he
noted that Hallock, 309 Helvering Cf. here. purposes our of substance not one 106. U. S. 6 rule” law common prevailing “the Keinath, applied the court divestiture subject to interest remainder vested aof holder that the held beneficiary within life death after the time has a reasonable 2d, 480 consequences. without the remainder disclaim renounce or did remainder holder emphasized court at 64. The until control ownership and right beneficial not obtain Ibid. beneficiary. of the life the death (1978). T. 70 C. (1980). F. 2d 93 (1932). Sess., 39 *5 665, Cong., 1st No. 72d Rep. 9 S. (1932). Sess., 27 708, Cong., 1st 72d Rep. No. R. 10 H. personal, tangible intangible,’ enough . . . real or or is broad property, conceptual contingent.” or include however expansive reading statutory language Our of the in Smith encompasses unquestionably transfer, an indirect effected contingent disclaimer, means of a of a future Congress gift “corollary” trust.11 enacted the tax as a or “supplement” to tax.12 In the estate Estate of Sanford explained Commissioner, 39, 44, 308 U. S. the Court important, “[a]n purpose gift if main, not the tax was prevent compensate or for avoidance of death taxes tax- ing gifts property gifts, inter vivos which, but for the subject original would be in its or converted form to the tax upon practical laid transfers at death.” Since the effect of petitioner’s expected disclaimers was to reduce the size of his gratuitous upon taxable estate and to confer a benefit objects bounty, natural of his the treatment of the disclaim- gifts fully purpose ers as taxable consistent with the basic statutory scheme.
II controlling Treasury Regulation provides that a re- accept ownership property fusal to transferred from a de- gift cedent does not constitute a if two conditions are met. First, governing refusal must be effective under the law the administration of the decedent’s estate. Second, the re- 11The actual value of the interest will be affected the fact that it is not indefeasibly vested. As the Tax Court noted in this case: petitioner’s “The value of not, course, remainder interest was equal to percent of the value of the corpus. Rather, depended upon it ac- tuarial reflecting factors contingencies.” various C., 70 T. at n. 3. 12The Reports Committee state that the designed impose tax was “to a tax measurably approaches the estate tax which would have been payable on the donor’s death had gifts not been made and the given had constituted his estate at his death. The tax will gifts reach reaсhed, for one another, reason or by the Rep. estate tax.” H. R. No. 708, supra, 28; Rep. S. supra, at 40. No. *6 knowl- time after reasonable a “within made be fusal must transfer.” the edge of existence of the requirement first that the dispute case in this no There is under effective were disclaimers controversy satisfied; has been the second arises The law. Massachusetts meaning the word of specifically,it is over requirement; peti- the creation may refer be read “transfer,” which grandmother’s or to will, interest remainder tioner’s tangi- the distribution vesting or interest of that either positions Both life tenant. upon the death ble assets Regulation. language of the support in the find normally a describe would layman “transfer” word To a existing than ownership rather of an change in to a the reference Moreover, interest. a new creation suggests property” “ownership aof decedent’s transfer of рroperty had been acquire that once must the transferee that grandmother never petitioner’s decedent; owned she created, but once her will that interests future owned (or equivalent) remainder- that their assets own the did possessory in become acquire their interests when will men implies Regulation that language Thus, character. petitioner yet when occurred had not “transfer” relevant in the trust. his interest renounced relevant language, however, indicates Other The death. testator’s the time occurs at “transfer” provi gift tax in the used basic term is the “transfer” word property consider any passage without sions describe S.U. C. consequences. may See have ation supra.13 quoted 2, 3, in nn. §§2501, irrevocable of an creation does not Petitioner contend “transfer” a is not contingent remaindermen alternative the benefit of within property a “transfer” made; of such trust the creation when if Margaret this case occurred statute, a “transfer” meaning of the “transfer” word short, the use Weyerhaeuser Jewett’s death. meaning. To 1(c) special § is not indicative Reg. Treas. 25.2511— describes a transfer that “is effected the decedent’s will” (or by prop- distribution the law of descent and of intestate vesting erty), by subsequent event or distribution of property. The must be transferred “from a dece- an estate executor or trust dent,” not from administrator. *7 any Regulation in The lack of reference to future inter- contingent remainders, ests or and the consistent focus on by through transfers effected the decedent will or the laws suggestion distribution, of intestate undermine the that the occurs other than at the relevant transfer time of the testa- Regulation requires “knowledge tor’s death. The also of the person transfer”; existence of the since a to whom assets actually have been distributed wоuld seldom, if ever, lack knowledge of the existence of such a transfer, it seems more likely provision protect persons that this was drafted to who knowledge had no of the creation of an interest. Regulation sup- balance, On we believe that the text of the ports interpretation. the Commissioner’s Because that text entirely appropriate is not clear, it is however, to examine briefly Regulation’s history.
Ill
§25.2511-l(c)
Treasury Regulation
changed
has not been
promulgated
since it was
on
November
1958. The form
Regulation,
however, is somewhat different from a
proposed
January
draft that was first
on
3, 1957. That draft
required a renunciation to be made “within a reasonable time
knowledge
after
of interest,”
existence of the
rather than
contrary, Congress
“transfer,”
has specifically indicated that the term
at
least as
used
statutory
tax,
provisions
“in
defining
is used
the broadest and
comprehensive
most
supra, nn.
sense.” See
9, 10.
It is not surprising
would
draftsmen of the
general
choose the
term
any passage
utilized
Congress to describe
possible
with
tax consequences.
of the “transfer.”14 The
of the existence
after knowledge
a contin
encompass
would
word “interest” unquestionably
arguably
if the word “transfer”
would
remainder even
gent
without
adopted
initial draft had been
Thus,
not.
if the
would be
certainly
subject
disclaimers
change, petitioner’s
must have
drafting change
tax. Petitioner contends
avoid this consequence.
been intended to
an exami-
argument
An
of petitioner’s
requires
assessment
lan-
change
Regulation’s
of the reason for the
nation
rendered
the Com-
of the change
The explanation
guage.
that it was intended to accomplish
in 1958 indicates
missioner
that suggested by petitioner.
from
different
quite
purpose
the Commissioner to the Secretary
A
Memorandum
1,1958,
on October
explained
submitted
Treasury
intended to
“the
capture
proper
language
the change
court decisions that the
early
Regu
between two
distinction”
*8
In both of these cases the
codify.15
to
lation had attempted
part:
in
3, 1957,
Regulation provided,
of the
January
draft
14 The
interest,
an
property
such as the interest of
of a vested
“The renunciation
immediately
upon a dece-
next-of-kin,
whom title
vests
or devisee in
heir or
law,
gift
persons
a
who receive
local
constitutes
to those
dent’s death under
the
the other hand
by means of the renunciation. On
property
the
inheritance,
title does
if under local law
gift, bequest,
of a
or
renunciation
complete, and is
vest,
gift if
renunciation is
immediately
is not a
not
of the in-
knowledge of the existence
a reasonable time after
made within
(1957).
Reg.
22
58
Fed.
terest.”
Notes,
27, 1981,p. 204.
July
in
published
Tax
The Memorandum
explains:
Memorandum
pertinent рart, the
v. Rout
rules in Brown
application
“In
to be the
what was intended
(1933)
Hardenbergh v.
641,
914,
zahn
63 F. 2d
cert. denied 290 U. S.
(1952)
836,
stated
63,
it was
cert.
344 U. S.
Commissioner
2d
denied
im
beneficiary
heir
or
property
title
did
vest in the
that where
to
not
did
death,
mediately upon
renunciation of
the decedent’s
in the bene
vested
making
gift,
a
but
where title
constitute
benefi
death,
act of the
ficiary
immediately
upon
or heir
the decedent’s
constituted
ciary
in
the decedent
giving up
passed
or heir
what
to him from
received.
were
making
gift.
provisions
of a
. . . Protests on these
and now
position
reviewing
our
protests,
After
these
we
reconsidered
have
transferee had renounced a fee interest before the adminis
tration of the decedent’s
been
estate had
completed.
In the
(CA6
case,
Routzahn,
earlier
Brown v.
As indicated in the Commissioner’s Memorandum, Treas. §25.2511-l(c) Reg. sought preserve distinction be- tween these two cases. Originally, tracked language the Hardenbergh opinion provided that a dis- *9 claimer was taxable if only title to the property had “vested”
under state law. On consideration, however, the Commis- sioner recognized that this did not “the language capture believe that proper the distinction between these two court turns on cases question the of whether under applicable the beneficiary law or heir State a can or cannot refuse accept to ownership property passed of the from the (c) decedent. Accordingly, we paragraph have revised of section 25.2511-1 to reflect this change position.” of indeed, in cases”; court these two proper between distinction fully “vested” had property interest the Routzahn, Brown Thus, to incor- taxpayer’s renunciation.16 of the the time at changed the the distinction, Commissioner proper porate the gov- law “the requirement that a “vesting” requirement to give estate” must the decedent’s erning of administration the property ownership transferred accept right “refuse to a property “vested Having the eliminated from a decedent.” Regulation, part the of the first language from the interest” part changed the second correspondingly Commissioner knowledge of exist- after time a reasonable read “within time a reasonable “within than rather transfer,” ence the interest.” knowledge existence after Regulation change was in the purpose of the Thus, the nor Brown Neither contingent remainders. to exclude contingent interests. Since Hardenbergh concerned supports Regulation the Commissioner’s original draft change was in its form and since position case, this in presented, issue to the unrelated that is a reason made history Commissioner’s Regulation’s buttresses position. history that contends also
Petitioner codify merely intended its draftsmen that demonstrates Hardenbergh v. Com- v. Routzahn and of Brown rules law controlled state those cases under and that missioner, “timeliness” “right” to renounce both interprets accurately Although petitioner renunciation. in case: 16 Asthe court stated it was 1912 until from of the estate possession inwas [taxpayer]
“The however, possession his not, It 1920. to the trustees transferred pe- within Nevertheless, any time at donee, as a but coexecutor. as would a renunciation or made taken the one-third have riod he could conceded, may be It neither. He did claiming it. him estopped have date 1912 and any between think, that, at time he died too, we had devise general under passed have distribution, this would of descent laws passed under will, have or, leaving would will, no his 2d, 916. 63 F. part estate.” distribution *10 eases, these two interpretation Regulation would render half of it superfluous. im- explicitly (1) two the disclaimer poses must be requirements: effective (2) law; as a matter of local the disclaimer must be made within a If reasonable time. timeliness were governed solely law, local the second would be requirement redundant. ’WTiileit is that local law possible may require disclaimer to effective, be to be such a timely requirement would not ab- solve the from the taxpayer separate timeliness requirement imposed by the federal Regulation. Otherwise, the Regula- tion would be with a complete single requirement disclaimer be effective under local law.17
h-4 > Petitioner s remaining arguments be may answered In quickly. the Tax Reform Act of Congress estab- lished specific standards for whether determining a dis- claimer constitutes a taxable gift; those new standards would support the Commissioner’s position this case if the origi- nal transfers had occurred after the effective date of the Act.18 Petitioner argues the legislative decision not to possible It is that the federal requirement timeliness was added in re sponse particular to the presented by Routzahn, facts Brown v. in which taxpayer eight years waited to renounce the interest and did so when years he was 72 old. Although timely the renunciation was as a matter of law, Ohio Treasury Department may thought delay well have that such unacceptable purposes. federal tax practical effect, 8-year delay likely made it that the part renunciation taxpay decision was personal er’s estate planning. explained by As the Tax Court in this case: “While a State might court willing be аccept a renunciation of a nonpossessory and not indefeasibly vested pas- interest after the sage time, of considerable long so parties as the interests of third have not harmed, been passage time is crucial to the scheme of the tax. time, potential With recipient can wait to see if he himself needs the property, or whether he had better pass directly genera- let it to the next C., tion.” 70 T. at 437. 18See Tax Reform 1893, 2009(b), § Act of 94-455, Pub. L. 90 Stat. 2518(b). § 26 U. S. C. *11 differ- retroactively that a evidence is apply standards those however, that clear, isIt effective. previously rule was ent interpretation proper opinion the on no expressed Congress merely established it case; in this issue Regulation at of the apply in the future.19 should unambiguous that rule an apply the 1958 to it is unfair argues that also Petitioner cre- had been that “retroactively” interest to an Regulation time the thаt, petitioner asserts previously; ated according already too adopted, it was late— was The interest.20 disclaim view—to Commissioner’s to the pe- assumption that anon is based It merit. argument lacks without interest “right” renounce to had a titioner Regulation. away” 1958 “taken consequences was petitioner does right. Indeed, such had never Petitioner with inconsistent is the disclaimers argue taxation were gift tax, which imposing a statutory provisions in the trust petitioner’s interest long before enacted adopted in advance well Regulation was 1958 created. “retroactivity” no see case; we in this the disclaimers problem. a contin- argues disclaimer that the
Finally, petitioner by analogizing it to an event anot taxable gent is remainder Commissioner, 2d 57 480 Keinath noting the decision 19 After Regulation, requirement time (CA8 1973), the “reasonable” Congress Report states House provided be should concerning disclaimers rules that definitive “believe[d] In addi- treatment. uniform purposes achieve gift tax estate for provided be should standard a uniform believe[d] that tion, [Congress] R.H. made.” be must disclaimer which a time within determining the (1976). 94-1380, pp. 66-67 Rep. No. inter- proper on opinion an expresses history legislative Nothing opinion such an Nor is Regulation. controlling previously pretation clarify may seek Congress law; mere enactment by the indicated States, v. United Knetsch Cf. affecting past. future without 361, 367-370. S.U. re attempted he had appeal more have argument would 20 Petitioner’s Regulation, adoption of immediately after nounce years later. than some rather appointment, special power generally exercise of a §2514. transfer. 26 not considered a taxable U. S. C. As response, however, the Commissioner notes a disclaim- closely general more ant’s control over resembles a power appointment, the exercise of which is a taxable special power of a transfer. Ibid. the holder Unlike —but general power may of a disclaimant like holder decide —a himself. It is this to retain the interest characteristic of the control exercised a disclaimant that makes a disclaimer a *12 scope provisions. the “transfer” within the of tax
V interpretation The of Commissioner’s the has years respect. been consistent over the and is entitled to generally applies This canon construction, of to the interpretation Commissioner’s ofthe Internal Code, Revenue see Commissioner v. Portland Cement Utah, Co. 450 of applied 156, 169, U. S. more even forceful when to the interpretation Regulation. Commissioner’s of his own Since the relevant “transfer” this case occurred when petitioner’s grandmother irrevocably transferred her assets testamentary petitioner’s rights to a trust, disclaimers of the created that trust were not made within reasonable accepting petitioner’s argument time. Even that the clock begin age majority, did not to run until he reached of the the passage years. disclaimers were made after the of 24 As the explained: Tax Court petitioner possessed, years,
“The the effective right ultimately to determine who the should receive 50-percent benefits of a remainder interest of a corpus approximately which, 1972,had a million. of $8 He respect waited to act of that remainder surviving years until beneficiary life of was over 70 age appears, and until he himself a man of and, was 45 it dis- of two execution means. substantial according pass to let elected claimers, he will—to grandmother’s of provisions alternative an hold, was bounty. we This, objects his natural property sub- disposition of over control exercise T. C. 2501.” imposed section gift tax jeсt omitted). (footnote (1978) of a assessment Commissioner’s agree. The We Regulation. the statute under proper, both Appeals is affirmed. Court judgment of the so ordered. It is whom Rehnquist with Justice Blackmun, Justice dissenting. join, O’Connor Justice easy on behalf clear or as case find this I do lead opinion would reading Court’s as a Government as some- be described could issue While believe. one bet- much petitioners have I conclude close, what judgment reverse I argument, would ter Appeals. Court
I peti- grandmother of Jewett, Weyerhaeuser Margaret January 14, on testate Jr:, died George Jewett, F. tioner Massachusetts. of resident a was she her death At 1939. in that probate duly to admitted was will which left She Commonwealth. of benefit for trust created By decedent her will lifetime, and during his Jewett, R. husband, James her Jewett, and George F. son, her of benefit for the thereafter of death theOn respective lives. Mary, their wife, estate beneficiaries, life three of the survivor George Jew- F. living of children the then to distributed to be child any deceased living issue the then and ett representation. right equal shares in George Jewett, F. Jewett, Jr.,
Petitioner was born George 10, April 1927; he thus old when his yet years grandmother died. The testatrix’ husband, James, son, and her died George, to 1972. is still she was prior Mary living; 7, born March 1901.
On executed an August petitioner1 instrument and disclaiming renouncing major portion any right receive remainder of the trust estate any the death upon his mother. On December of that year, petitioner exe- cuted a second instrument and disclaiming the re- renouncing such maining portion any It is right. undisputed these 1972 disclaimers were valid, timely, effective under the applicable Massachusetts law.
Petitioner F. Jewett, Jr., George wife, and his petitioner Lucille M. Jewett, filed federal tax gift returns for the calen- dar ended quarters September 30 аnd December 31,1972, re- Those spectively. returns notified Commis- respondent sioner of the disclaimers but did not them as acknowledge taxable transfers for federal tax gift purposes.2 audit,
On the Commissioner determined that the disclaim- ers were not “made within a reasonable time after knowl- edge the existence of transfer,” within the meaning of Treas. §25.2511-l(c), 25.2511-1(c) Reg. § 26 CFR (1981), and thus were transfers subject federal under 2501(a)(1) 2511(a) §§ of the Internal Revenue Code of 1954, as amended, 2501(a)(1) 2511(a). 26 U. §§ S. C. De- ficiencies of approximately $750,000 were determined.
Petitioners
sought redetermination
in
deficiencies
the United States Tax Court. That
court,
a reviewed de-
cision,
ruled
favor of the Commissioner.
321 (1972), an unre- 352 T. C. 58 Commissioner, Keinath (1973), 57 2d reversed, been had that decision viewed Appeals of Court States panel the United of by a unanimous present case, In the years before. five Eighth Circuit for vote, divided a Circuit, panel Ninth affirmed a (1980). conflict, so of Because F. 2d 93 Tax Court. Appeals, the Courts two judgments of created, between is here. case
II language ante, at observes, theAs Court for petitioners well as as support provides acknowledges that also The Court the Commissioner. “implies the relevant language Regulation has petitioner renounced yet when occurred not had ‘transfer’ opts however, Court, The Ibid. the trust.” per- interpretation. I am opposing Commissioner’s for the otherwise. suaded support lend colorable factors sure, certain To be yet (a) petitioner was not Although position:
Commissioner’s age 21of he attained died, years the testatrix old when in 1972. the disclaimers years he executed before 2511(a) and 2501(a)(1) broad are (b) the Code and Sections prop- every “transfer reach sweeping intended were and di- whether otherwise, or erty by gift,” whether position (c) indirect, could petitioners’ accept toAnd rect or beneficiary of a ais who practical that one matter, mean, for a may aside stand created, testatrix such as this trust, may make sense, in a disclaiming thus, long period before planning actual when part estate his own disclaimer hand property is nearer enjoyment possessory many than evaluated desirability is better for it or a need its years before. without not controversy, however, side other
The with deal does support. federal substantial transfer “the with is concerned It abstractions. development of 2501(а)(1). § With the by gift.” 26 C. U. S. *15 of inter vivos or, testamentary matter, that trusts — “interests” of legally recognized kinds, various pos- trusts — can be created sessory anticipatory, the trustor. The or, remainder beneficiary contingent the Court seems here, ante, n. to at of “a suggest vested remainder divestiture,” however, never subject may realize anything of actual of income or by way enjoyment corpus. contin- gencies upon enjoyment never depends may ripen. particular, the contingent beneficiary may die while the life still lives. beneficiary
These possibilities, accompanied by monetary impact of and death taxes led courts and legislative bodies to recog- nize or common-law disclaimer develop and to enact preven- tive statutory provisions. Indeed, here, Commissioner § Regulation issue, 1(c), recognizes right 25.2511— to refuse, tax, free of gift acceptance of “ownership prоp- erty transferred from a decedent,” provided.that right refuse is effective under local law and the refusal is “made within a reasonable after knowledge the existence of time the transfer.” It accepted disclaimers in the present case were effective under Massachusetts I law. search the statute in vain, however, for men- any statutory of, tion or provision for, the reasonable-time requirement. One might say, therefore, that the Commissioner in his wis- dom acted as a matter grace relieve, the conditions upon specified, what could be difficult and fi- unfair and potentially nancially disastrous tax situations.
Be that as it Imay, regard “transfer” not as one any here, (the George Jewett, Jr. necessary predicate Commissioner’s determination), but as a transfer from the testatrix. She is the one from whom the flows. Pe- largess titioner, of course, inwas beneficiaries, line of designated but hе stepped from that line disclaimer, the acts of through and the transfer will him pass by.
There are other practical appeal considerations that have for me: its “rea- Accepting Commissioner’s
1. is to time to me it seems requirement, time” sonable *16 1939, but in the testatrix death not from measured, be beneficiary. That life preceding life the death from has alive. Petitioner still mother, is beneficiary, petitioner’s any will have never no benefit realized contingency is the mother. It predeceases his if he benefit consideration sense in important makes that is event any disclaimer. fundamentally volun from a different is 2. A disclaimer accept to is a refusal A disclaimer property. tary transfer 683, 693 F. 2d 452 States, v. United Bel initio. ab (1972); Black’s see (CA5 1971), 406 U. S. denied, cert. 1979). (5th is of disclaimer The law Dictionary 417 ed. Law concepts a transfer thát property-law basic on the founded recipient, no by and that acceptance complete until its not A against his will. accept property person forced can be property; recipients the transferred chooses transferor has that selection selection, no such makes a disclaimant merely disclaimers by Petitioner’s the trustor. made been corpus trust; right any to receive future renounced they distri the future purport to direct even or did direct corpus. of that bution decided vote, divided Circuit, its the Ninth
3. Until authority on Appeals only present Court case, supra. reasons For Commissioner, v. Keinath issue certiorari not seek did 'him, the Commissioner known best any oppos- unmolested stood decision and the in that case years. Indeed, authority seven for over ing appellate court sitting en Eighth Circuit expressly reaffirmed it was (1980), a 2d 628 F. Commissioner, in banc Cottrell deci- Circuit Ninth just before few a weeks case decided law tax period substantial interim, In sion.3 that, in contrast they felt Cottrell, because dissented judges three “extensive” had taxpayer Keinath, Cottrell in situation with factual appoint- testamentary power through general control and “ultimate” and their advisers have properly goes, taxpayers assumed law, that a under state was valid disclaimer, valid for federal if made. timely tax as well it were purposes Judge Harris, “it is below, observed that dissenting particularly important in established matters of taxation that precedent be fol- 2d, lowed.” 638 F. at 96. He went on to that if say the case were one of first he well impression, “might join with the ma- “[njumerous but jority” have practitioners undoubtedly Keinath] relied on this opinion advising [the as to the tax consequences of such acts as are involved the instant case, Ibid. so.” I justifiably agree stability tax law is desirable. for the Tax Except Court, the pronounced law Keinath. appeared have achieved a level of after stability 4. The *17 Circuit’s Eighth analysis issue, it legal seems Keinath the court stressed that the re- to me, is In sound. mainder beneficiary “at no time accepted any income or prin- cipal from the trust,” 2d, 480 F. and that within eight weeks of the death of the testator’s widow-life beneficiary, the remainderman executed his disclaimer. It was estab- lished that the disclaimer was valid and under timely appli- cable state law and that as a result thereof the trust estate passed to the disclaimant’s children. The court noted that “reasonable time,” as that term is in used the is Regulation, not defined in either the Code or the Regulation. The basic common-law requirements that the disclaimer must be made within a reasonable time and that it be effective under local law “are but a codification of common law principles appli- cable to the doctrine of disclaimers.” Id., at 61. A central They ment. modify would the Keinath approach “where the remainder- essentially man controls the events which would cause divestiture of the interest.” They agreed, however, with “general applied rule as to the Keinath,” facts of where an interest is indefeasibly “less than an vested re- mainder.” 2d, 628 F. at 1132-1133. It is of interest to note that the court Cottrell observed: “The Commis- in sioner has not asked us to Keinath, overrule and we are inclined to do so on our own Id., motion.” at 1131. in the “transfer” word interpretation factor is nothing really to ac- “had remainderman Regulation. The ownership or control way of beneficial cept or renounce outliving benefi- the life in he succeeded property until pre- that, under held then The court 64. ciary.” Id., at inter- remainder vested of a holder law, the vailing common within time a reasonable has subjected to divestiture est beneficiary. life death after to disсlaim C. 147 Commissioner, 37 T. distinguished Fuller It Ibid. so on and did relied, had Court (1961), Tax upon which below. grounds mentioned factual sitting adhered banc, en Eighth Circuit, Cottrell, “indistinguishable was the case analysis. felt It Keinath its 1128. 2d, at respect Keinath.” any material question valid was disclaimer undisputed that the It was the tax- unequivocal, it was law, state accepted under inAs disclaimed. she before no payer began period with time” “reasonable if the Keinath, untimely, if but was disclaimer testator, the death beneficiary, the dis- life the death event critical having timely, executed been unquestionably “was claimer days, 1129. 2d, at 628 F. thereafter.” months, two filed allowing the improper nothing or unfair There beneficiary’s death life until to wait remainderman bequest. accept decide whether then *18 held, analysis, way and Eighth said Circuit the What us, before applied facts to the when Cottrell, and in Keinath Circuit Ninth The here. control persuasive should and disagreed mеrely analysis, any particular majority, without a held, reasoning and and Cottrell Keinath with in the used “‘transfer’ conclusory statement, that prop- disclaimant regulation the transfer means transfer erty him,” disclaimed peti- died Jewett Mrs. place when question took estate. her contingent remainder received tioner 96. 2d, at 5. The notes, ante, Court at the Tax Reform §2009(b)(1), Act of 1976, 94-455, Pub. L. 26 U. S. §2518, C. Congress imposed now has a uniform tax treatment of dis- independent claimers, of state law. Section 2518, as so specifically added to the Code, however, was prospec- made only, applicable tive only that is, it was made to transfers cre- ating §2009(e)(2), an interest after 1976. Pub. L. 94-455, application Stat. present 1896. It thus has no to the case. The Court “Congress expressed declares, ante, at 317: no opinion proper interpretation on the merely issue in this case,” but unambiguous established an rule for the future. That conсlusionis not at all clear to me. Congress was aware of the Keinath decision. See H. R. Rep. (1976). p. No. 94-1380, 66, and n. 4 The House Com- Ways mittee on and Means observed: apply “The respect amendments with to transfers cre- ating person an disclaiming interest in the made after December 31, 1976. In the case of transfers made be- January fore relating 1977, the rules to transfers present including period under law, within disclaimer must be apply made, are to continue to to dis- claimers made after December 31, Id., 1976.” at 67-68. For me, this is acknowledgment an ruling Keinath represented prior what the law to 1977, it still what is for trust instruments year. effective before that calendar join I cannot “Congress Court’s flat statement that ex- pressed opinion” no existing on the law.
6. To be sure,
persisted
contrary
Tax Court has
in its
rulings.
rulings,
Those
I feel, rest on an
base.
insecure
original
case, from which all Tax
other
Court deci-
sions have flowed, wаs Fuller v. Commissioner,
327 disclaimed. she long period before enjoyment for actual ized from distinguishes case that fact vital is a me, This, for en- disclaimant each Jewett, where Cottrell, Keinath, accepted her had Fuller Mrs. whatsoever. joyed benefit no renouncing it. gift before Commissioner, 58 v. Keinath was ease Tax Court next
The relied Keinath (1972). judge decided who The 352 T. C. acknowledged He precedent. controlling Fuller on 25 over “for trust from receipt income Fuller’s Mrs. admittedly differ- “are facts the Fuller that years,” conceded immate- distinction “this that ruled nevertheless ent,” but resting “as Fuller read didHe 358. C., T. 58 rial.” but acceptance of income upon Fuller’s Mrs. C., T. 58 trust.” acceptanсe her upon her at 358. was decision pertinent Tax Court The next (1978). court, There 430 T. 70 C. present case.4 deci- upon, its own relied to, and referred decision, reviewed Eighth Cir- reversed been had in Keinath sion was correct in Keinath our decision think cuit. “We 435. C., at T. 70 in this case.” decision it controls v. Com- Halbach Estate are cases Court last Tax The v. Commis- (1978), Cottrell 141 T. C. missioner, 71 estate (1979). a federal was former The T. 489 72 C. sioner, (disclaimer within §2035 C. centering S. 26 U. on case concerning a sister death). latter, The years of three awas Neither gift tax. federal related decedent, Halbach recognizing that Cottrell, judge in decision. reviewed Circuit, avoided Eighth only appealable was that case distinguishing it in Keinath Appeals decision the Court Eighth Circuit by unacceptable found grounds later on reversed. decision Tax Court majority when the Commissioner, C. T. Rolin Estate however, See, 1978). (CA2 2d 368 aff'd, (1977), *20 saga Such is the of the issue in the United Stаtes Tax origin another, Court. The cases build on one but the original my clearly case, base is Fuller. That view, distinguishable its facts thus, indeed, on is “a frail reed on which to lean.” position
7. The Court’s and the Commissioner’s also seems to me to embrace a distinct element of unfairness. The Com- repeatedly years missioner stresses elapsed the number of between death of the testatrix and the execution of the disclaimers. This same element has been stressed in require others of long these cases. But to the disclaimer be- ripen enjoyment fore the interest could into means that the decision must be made at a time when the disclaimant does disclaiming not know what he is or whether he ever would enjoy any receive and compatible interest. This concern is wording applicable Regulation with the speaks “knowledge Eighth existence of the transfer.” The recognized Circuit this element of unfairness in Cottrell. 628 F. 2d, at 1131.
For all these I judgment reasons, would reverse the Appeals. Court of respectfully I therefore dissent.