OCTOBER TERM, 1993
Syllabus
UNITED STATES v. IRVINE ET AL.
CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE EIGHTH
CIRCUIT
No. 92-1546. Argued December 6, 1993-Decided April 20, 1994
As a result of Sally Ordway Irvine's 1979 disclaimer of
five-sixteenths of her interest in the corpus of a recently
terminated trust that had been created by her grandfather in 1917,
each of her five children received one-sixteenth of her share of
the distributed trust principal. Her disclaimer was effective under
Minnesota law even though she had learned of her contingent
interest in the trust at least as early as 1931 when she became 21,
but the Internal Revenue Service determined that the disclaimer
brought about a gratuitous transfer that was subject to federal
gift tax under Internal Revenue Code §§ 2501(a)(1) and 2511(a).
Mrs. Irvine died after she paid the tax and accrued interest, and
respondents, representing her estate, filed this refund action.
Arguing that the transaction was not excepted from gift tax under
Treasury Regulation §25.2511-1(c)(2) (Regulation), the Government
relied on Jewett v. Commissioner,
455 U. S. 305, in which
this Court construed the 1958 version of the Regulation to provide
that the disclaimer of a remainder interest in a trust effects a
taxable gift to the beneficiary of the disclaimer unless the
disclaimant acts within a reasonable time after learning of the
transfer that created the interest being disclaimed. Respondents
attempted to distinguish Jewett as having dealt with a trust
established in 1939, after the creation of the gift tax by the
Revenue Act of 1932 (Act). The District Court ruled for respondents
on cross-motions for summary judgment. The Court of Appeals
affirmed, holding that the Regulation's express terms rendered it
inapplicable to the trust in question; that state law therefore
governed, and the federal gift tax did not apply because Mrs.
Irvine's disclaimer was indisputably valid under state law; and
that taxation of the transfer effected by the disclaimer would
violate the Act's prohibition of retroactive gift taxation.
Held: The disclaimer of a remainder interest in a trust is
subject to federal gift taxation when the creation of the interest
(but not the disclaimer) occurred before enactment of the gift tax.
Pp.232-242.
(a) Although the Internal Revenue Code's gift tax provisions
embrace all gratuitous transfers of property having significant
value, the Regulation affords an exception by providing that a
disclaimer of property
225
transferred from a decedent's estate does not result in a gift
if it is unequivocal and effective under local law, and made
"within a reasonable time after knowledge of the existence of the
transfer." The Jewett Court held that "the transfer" in the 1958
version of the Regulation refers to the creation of the interest
being disclaimed, with the "reasonable time" therefore beginning to
run upon knowledge of the creation of the trust. Pp. 232-234.
(b) If the Regulation applies to Mrs. Irvine's disclaimer, her
act resulted in taxable gifts. The knowledge and capacity to act,
which are presupposed by the requirement that a tax-free disclaimer
be made within a reasonable time of the disclaimant's knowledge of
the transfer of the interest to her, were present in this instance
at least as early as Mrs. Irvine's 21st birthday in 1931. Although
there is no bright-line rule for timeliness in the absence of a
statute or regulation providing one, Mrs. Irvine's delay for at
least 47 years in making her disclaimer could not possibly be
thought reasonable. Pp. 234-236.
(c) Respondents' arguments that the Regulation is inapposite by
its own terms to the facts of this case need not be resolved here,
for the result of the Regulation's inapplicability would not be, as
respondents claim, a freedom from gift taxation on a theory of
borrowed state law. State property transfer rules do not translate
into federal taxation rules because the principles underlying the
two look to different objects. In order to defeat the claims of a
disclaimant's creditors in the disclaimed property, the state rules
apply the legal fiction that an effective disclaimer of a
testamentary gift cancels the transfer to the disclaimant ab initio
and substitutes a single transfer from the original donor to the
disclaimant's beneficiary. In contrast, Congress enacted the gift
tax as a supplement to the federal estate tax and a means of
curbing estate tax avoidance. Since the reasons for defeating a
disclaimant's creditors would furnish no reasons for defeating the
gift tax, the Court in Jewett,
supra, at 317, was
undoubtedly correct to hold that Congress had not meant to
incorporate state-law fictions as touchstones of taxability when it
enacted the Act. Absent such a legal fiction, the federal gift tax
is not struck blind by a disclaimer. Pp. 236-240.
(d) Taxation of the transfer following Mrs. Irvine's disclaimer
would not violate § 501(b) of the Act, which provided that it would
"not apply to a transfer made on or before the date of the
enactment of this Act [June 6, 1932]." Section 501 merely
prohibited application of the gift tax statute to transfers
antedating the enactment of the Act; it did not prohibit taxation
where, as here, interests created before the Act were transferred
after enactment. Pp.240-241.
981 F.2d
991, reversed.
226
SOUTER, J., delivered the opinion of the Court, in which
REHNQUIST, C. J., and STEVENS, O'CONNOR, KENNEDY, THOMAS, and
GINSBURG, JJ., joined, and in which SCALIA, J., joined except as to
Part III-A. SCALIA, J., filed an opinion concurring in part and
concurring in the judgment, post, p. 242. BLACKMUN, J., took no
part in the decision of the case.
Kent L. Jones argued the cause for the United States.
With him on the briefs were Solicitor General Days, Acting
Assistant Attorney General Paup, Deputy Solicitor General Wallace,
Jonathan S. Cohen, and Teresa E. McLaughlin.
Phillip H. Martin argued the cause for respondents.
With him on the briefs were Mary
J. Streitz, Carol A.
Peterson, and Cole Oehler.
*
JUSTICE SOUTER delivered the opinion of the Court.
In Jewett v. Commissioner,
455 U. S. 305 (1982), we
construed the 1958 version of Treasury Regulation § 25.2511l(c) to
provide that the disclaimer of a remainder interest in a trust
effects a taxable gift unless the disclaimant acts within a
reasonable time after learning of the transfer that created the
interest. This case presents the question whether the rule is the
same, under current Treasury Regulation § 25.2511-1(c)(2)
(Regulation), when the creation of the interest (but not the
disclaimer) occurred before enactment of the federal gift tax
provisions of the Revenue Act of 1932. We hold that it is.
I
In 1917, Lucius P. Ordway established an irrevocable inter vivos
family trust, with his wife and their children as primary
concurrent life income beneficiaries, to be succeeded by unmarried
surviving spouses of the children and by grandchildren. The trust
was to terminate upon the death of the last surviving primary
income beneficiary, at which time the
* Burton G. Ross, Cynthia S. Rosenblatt, and Robert P.
Reznick filed a brief for John G. Ordway, Jr., et al. as amici
curiae urging affirmance.
Geoffrey
J. O'Connor filed a brief for the estate of
Helen W. Halbach et al. as amici curiae.
227
corpus would be distributed to Mr. Ordway's SUrVIVIng
grandchildren and the issue of any grandchildren who had died
before termination. When the trust terminated on June 27, 1979, the
corpus was subject to division into 13 equal shares among 12
grandchildren living and the issue of one who had died. Prior to
distribution, on August 23, 1979, one of the grandchildren, Sally
Ordway Irvine, filed a disclaimer of five-sixteenths of her
interest in the trust principal. Mrs. Irvine had learned of her
contingent interest in the trust at least as early as 1931 when she
reached the age of 21, and she had begun receiving a share of the
annual trust income after her father's death in 1966. Her
disclaimer was nonetheless effective under a Minnesota statute on
the books at the time, which permitted the disclaimer of a future
interest at any time within six months of the event finally
identifying the disclaimant and causing her interest to become
indefeasibly fixed.1 As a result of her disclaimer, each of Mrs.
Irvine's five children received one-sixteenth of her share of the
distributed trust principal.
Mrs. Irvine reported the disclaimer in a federal gift tax
return, but did not treat it as resulting in a taxable gift. The
Commissioner of Internal Revenue determined on audit that the
disclaimer indirectly transferred property by gift within the
meaning of Internal Revenue Code of 1986 §§ 2501(a)(1)2 and
2511(a),3 and was not excepted from gift
1 Minn. Stat. § 501.211, subd. 3 (1978), repealed by 1989 Minn.
Laws, ch. 340, art. 1, § 77 (and replaced by Minn. Stat. § 501B.86,
subd. 3 (1992) (changing the time permitted for disclaiming to nine
months, effective January 1, 1990)).
2 "A tax ... is hereby imposed for each calendar year on the
transfer of property by gift during such calendar year by any
individual resident or nonresident." 26 U. S. C. § 2501(a)(1).
3 "Subject to the limitations contained in this chapter, the tax
imposed by section 2501 shall apply whether the transfer is in
trust or otherwise, whether the gift is direct or indirect, and
whether the property is real or personal, tangible or intangible
.... " 26 U. S. C. §2511(a).
228
tax under Treas. Reg. § 25.2511-1(c)4 because it was not made
"within a reasonable time after [Mrs. Irvine's] knowledge" of her
grandfather's transfer creating her interest in the trust estate.
Mrs. Irvine responded with an amended return treating the
disclaimer as a taxable gift, on which she paid the resulting tax
of $7,468,671, plus $2,086,627.51 in accrued interest on the
deficiency. 5 She then claimed a refund of the tax and interest,
which the Internal Revenue Service denied.
4 The following is the relevant text of the 1958 regulation then
in effect:
"The gift tax also applies to gifts indirectly made. Thus, all
transactions whereby property or property rights or interests are
gratuitously passed or conferred upon another, regardless of the
means or device employed, constitute gifts subject to tax. See
further § 25.2512-8. Where the law governing the administration of
the decedent's estate gives a beneficiary, heir, or next-of-kin a
right to completely and unqualifiedly refuse to accept ownership of
property transferred from a decedent (whether the transfer is
effected by the decedent's will or by the law of descent and
distribution of intestate property), a refusal to accept ownership
does not constitute the making of a gift if the refusal is made
within a reasonable time after knowledge of the existence of the
transfer. The refusal must be unequivocable
[sic] and
effective under the local law. There can be no refusal of ownership
of property after its acceptance. Where the local law does not
permit such a refusal, any disposition by the beneficiary, heir, or
next-of-kin whereby ownership is transferred gratuitously to
another constitutes the making of a gift by the beneficiary, heir,
or next-of-kin. In any case where a refusal is purported to relate
to only a part of the property, the determination of whether or not
there has been a complete and unqualified refusal to accept
ownership will depend on all of the facts and circumstances in each
particular case, taking into account the recognition and
effectiveness of such a purported refusal under the local law. In
the absence of facts to the contrary, if a person fails to refuse
to accept a transfer to him of ownership of a decedent's property
within a reasonable time after learning of the existence of the
transfer, he will be presumed to have accepted the property .... "
Treas. Reg. §25.2511-1(c), 26 CFR § 25.2511-1 (c) (1959).
5 Mrs. Irvine was also assessed additional gift tax and
penalties in connection with an unrelated gift made in 1980 because
her amended gift tax return for the third quarter of 1979 reduced
the amount of unified credit available to her in the following
year. See 26 U. S. C. § 2505 (1988 ed. and Supp. IV). That
assessment is not at issue here.
229
After Mrs. Irvine's death in 1987, respondents, representing her
estate, filed this action for refund of the tax and interest in the
United States District Court for the District of Minnesota. The
Government continued to maintain that the partial disclaimer
brought about a transfer subject to federal gift tax because Mrs.
Irvine had not made it, as the Regulation requires, "within a
reasonable time after knowledge of the [earlier] transfer" that
created her interest in the trust estate. The Government relied on
Jewett v. Commissioner,
455 U. S. 305 (1982), in
which this Court held that the "transfer" referred to in Treas.
Reg. § 25.2511-1(c), 26 CFR § 25.2511-1(c) (1959) (promulgated in
1958), knowledge of which starts the clock ticking, occurs at the
creation of the interest being disclaimed, not when its extent is
finally ascertained or it becomes possessory. Jewett, supra, at
311-312.
Respondents tried to distinguish Jewett as having dealt with a
trust established in 1939, after the creation of the gift tax by
the Revenue Act of 1932 (Act), whereas the Ordway trust had been
created before the Act, in 1917. Respondents also argued that the
"reasonable time" limitation did not apply because the pre-Act,
1917 transfer creating the trust was not a "taxable transfer" of an
interest, absent which the Regulation was inapplicable.6 On
cross-motions
6 The 1958 version of the Regulation was in force throughout the
period from Mrs. Irvine's disclaimer to her unsuccessful claim for
a refund. The parties agree, however, that the current (1986)
version of the Regulation supersedes the earlier version and
governs this case. See 26 U. S. C. § 7805(b) (Secretary of the
Treasury "may prescribe the extent, if any, to which any ruling or
regulation, relating to the internal revenue laws, shall be applied
without retroactive effect"); Automobile Club of Mich. v.
Commissioner,
353 U.
S. 180, 184 (1957) (Treasury Regulations may be retroactively
applied unless doing so constitutes an abuse of the Secretary's
discretion).
The relevant regulation is now Treas. Reg. §25.2511-1(c)(2), 26
CFR § 25.2511-1 (c)(2) (1993), which provides in relevant part:
"In the case of taxable transfers creating an interest in the
person disclaiming made before January 1, 1977, where the law
governing the administration of the decedent's estate gives a
beneficiary, heir, or next-of-kin a right completely and
unqualifiedly to refuse to accept ownership of prop-
230
for summary judgment, the District Court held that imposing the
gift tax on Mrs. Irvine's disclaimer would amount to retroactive
application of the gift tax in violation of the Act's provision
that "[t]he tax shall not apply to a transfer made on or before the
date of the enactment of this Act [June 6, 1932]." Revenue Act of
1932, ch. 209, § 501(b), 47 Stat. 245. The District Court cited
Ordway v. United States, 89-1 USTC , 13,802 (1989), in which the
United States District Court for the Southern District of Florida
had reached the same conclusion, on virtually identical facts, in a
case involving a partial disclaimer by another beneficiary of the
Ordway trust.
A divided panel of the Court of Appeals for the Eighth Circuit
reversed.
936 F.2d
343 (1991). It rejected the view that the Regulation is
inapplicable to a trust created before enactment of the gift tax
statute simply because the Regulation reaches only "'taxable
transfers creating an interest in the person disclaiming made
before January 1, 1977.'" Id., at 347 (emphasis in original). The
Court of Appeals held that the transfer creating the trust was
"tax-
erty transferred from a decedent (whether the transfer is
effected by the decedent's will or by the law of descent and
distribution), a refusal to accept ownership does not constitute
the making of a gift if the refusal is made within a reasonable
time after knowledge of the existence of the transfer. The refusal
must be unequivocal and effective under the local law. There can be
no refusal of ownership of property after its acceptance. In the
absence of the facts to the contrary, if a person fails to refuse
to accept the transfer to him of ownership of a decedent's property
within a reasonable time after learning of the existence of the
transfer, he will be presumed to have accepted the property. Where
the local law does not permit such a refusal, any disposition by
the beneficiary, heir, or nextof-kin whereby ownership is
transferred gratuitously to another constitutes the making of a
gift by the beneficiary, heir, or next-of-kin. In any case where a
refusal is purported to relate to only a part of the property, the
determination of whether or not there has been a complete and
unqualified refusal to accept ownership will depend on all the
facts and circumstances in each particular case, taking into
account the recognition and effectiveness of such a purported
refusal under the local law."
231
able," relying on the provision of Treas. Reg. § 25.25182(c)(3)
that "'a taxable transfer occurs when there is a completed gift for
Federal gift tax purposes regardless of whether a gift tax is
imposed on the completed gift.'" 936 F. 2d, at 347-348. The court
adopted the reasoning of its sister court for the Eleventh Circuit
in Ordway v. United States,
908 F.2d
890 (1990), which held that a "taxable transfer" occurs within
the meaning of the Regulation whenever there is " 'any transaction
in which an interest in property is gratuitously passed or
conferred upon another,' even if that transaction was not subject
to the gift tax." Id., at 895 (citation omitted). Applying the
Regulation, the Court of Appeals for the Eighth Circuit held that
Mrs. Irvine's disclaimer was subject to gift tax because she did
not make it within a reasonable time after she learned of her
interest in the trust. Finally, the divided panel also upheld
application of the Act against the claim of retroactivity, holding
it to be irrelevant that the trust antedated the 1932 enactment of
the Act, since the tax was being imposed on the transfer brought
about by the 1979 disclaimer, not on the inter vivos transfer that
created the trust in 1917. 936 F. 2d, at 346.
Respondents' suggestion for rehearing en banc was granted,
however, and the panel opinion was vacated. Unlike the panel, the
en banc court affirmed the District Court, holding the Regulation
inapplicable because its terms expressly limit its scope to
"taxable transfers ... made before January 1, 1977."
981 F.2d
991 (CA8 1992). The creation of the Ordway trust in 1917 was
not a "taxable transfer," the court reasoned, because the federal
gift tax provisions had yet to be enacted: "It is fundamental that
for a transfer to be taxable there must be an applicable tax in
existence when the transfer is made. No such federal tax existed on
January 16, 1917, when ... Mrs. Irvine's interest was created."
Id., at 994. Given the inapplicability of the Regulation and its
"reasonable time" requirement for tax-free disclaimer, the majority
held that state law governed the effect of a dis-
232
claimer for federal gift tax purposes. See
id., at 996
(citing Hardenbergh v. Commissioner,
198 F.2d
63 (CA8), cert. denied, 344 U. S. 836 (1952)); 981 F. 2d, at
998 (concurring opinion). Because Mrs. Irvine's disclaimer was
indisputably valid under Minnesota law, the court held that the
federal gift tax did not apply. Finally, the majority rejected the
panel's analysis of retroactive application, indicating that
taxation of the transfer effected by the disclaimer would violate
the Act's prohibition of retroactive gift taxation. Id., at
994.
In a concurring opinion,
id., at 996-998, Judge Loken
also concluded the Regulation was inapplicable, not because of its
limitation to "taxable transfers," but because it is limited to
interests in "property transferred from a decedent ... by the
decedent's will or by the law of descent and distribution," whereas
the Ordway trust came from an inter vivos transfer. Judge Loken
shared the majority view, however, that because the Regulation was
inapplicable, the federal gift tax consequences of the disclaimer
were a function of state law. The dissent took the position of the
majority in the panel opinion, and of the Eleventh Circuit in
Ordway v. United States, supra. See 981 F. 2d, at 998-1002.
The conflict prompted us to grant certiorari to determine
whether a disclaimer made after enactment of the gift tax statute,
of an interest created before enactment, is necessarily free of any
consequent federal gift taxation. 508 U. S. 971 (1993). We hold
that it is not, and reverse.
II
The Internal Revenue Code of 1986 taxes "the transfer of
property by gift," 26 U. S. C. § 2501(a)(1),7 "whether the transfer
is in trust or otherwise, whether the gift is direct or indirect,
and whether the property is real or personal, tangible or
intangible," § 2511(a).8 We have repeatedly em-
7 See n. 2,
supra. 8 See n. 3,
supra.
233
phasized that this comprehensive language was chosen to embrace
all gratuitous transfers, by whatever means, of property and
property rights of significant value. See, e.
g., Dickman v.
Commissioner,
465 U.
S. 330, 333-335 (1984); Jewett v. Commissioner, 455 U. S., at
309-310; Smith v. Shaughnessy,
318 U. S. 176, 180
(1943). We held in Jewett, supra, at 310, that "the statutory
language ... unquestionably encompasses an indirect transfer,
effected by means of a disclaimer, of a contingent future interest
in a trust," the practical effect of such a transfer being "to
reduce the expected size of [the taxpayer's] taxable estate and to
confer a gratuitous benefit upon the natural objects of [her]
bounty .... "
Treasury Reg. §25.2511-1(c)(1)9 restates the gift tax's broad
scope by providing that the tax is payable on "any transaction in
which an interest in property is gratuitously passed or conferred
upon another, regardless of the means or device employed .... " The
Regulation (subsection 1(c)(2)), on the other hand, affords an
exception to the general rule of taxability, by providing that a
disclaimer of property transferred by a decedent's will or the law
of descent and distribution does not result in a gift if it is
unequivocal and effective under local law, and made "within a
reasonable time after knowledge of the existence of the transfer."
As
9 "The gift tax also applies to gifts indirectly made. Thus, any
transaction in which an interest in property is gratuitously passed
or conferred upon another, regardless of the means or device
employed, constitutes a gift subject to tax. See further §
25.2512-8 relating to transfers for insufficient consideration.
However, in the case of a taxable transfer creating an interest in
the person disclaiming made after December 31, 1976, this paragraph
(c)(1) shall not apply to the donee if, as a result of a qualified
disclaimer by the donee, the property passes to a different donee.
Nor shall it apply to a donor if, as a result of a qualified
disclaimer by the donee, a completed transfer of an interest in
property is not effected. See section 2518 and the corresponding
regulations for rules relating to a qualified disclaimer." Treas.
Reg. §25.2511-1(c)(1), 26 CFR §25.2511-1(c)(1) (1993).
234
already noted, the Jewett Court held that "the transfer" in the
1958 version of the Regulation refers to the creation of the
interest being disclaimed, with the "reasonable time" therefore
beginning to run upon knowledge of the creation of the trust. See
supra, at 229.
III A
On one point there cannot be any serious dispute, for it is
clear that if the Regulation applies to Mrs. Irvine's disclaimer,
her act resulted in taxable gifts. The knowledge and capacity to
act, which are presupposed by the requirement that a tax-free
disclaimer be made within a reasonable time of the disclaimant's
knowledge of the transfer of the interest to her, were present in
this instance at least as early as Mrs. Irvine's 21st birthday in
1931.10 We need not decide whether a disclaimer good for gift tax
purposes could be required to have been made before enactment of
the gift tax, for Mrs. Irvine did not disclaim shortly after
enactment of the Act, and the timeliness determination in this case
would be the same whether the reasonable time was calculated from
Mrs. Irvine's first knowledge of the interest (1931) or from the
enactment of the federal gift tax statute (1932). Moreover, we
understand the Government to have conceded that it would not have
contested the timeliness of a disclaimer made within a reasonable
time after the enactment of the Act. See Tr. of Oral Arg. 12.
The determination of the amount of "reasonable time" that
remained after Mrs. Irvine learned of the interest and reached
majority status must be based upon the gift tax's purpose to curb
avoidance of the estate tax. We have al-
10 Arguably, occasion and capacity occurred under applicable
Minnesota law in 1928 when Mrs. Irvine became 18 years old, the age
of majority for women at the time. 1866 Minn. Gen. Stat., ch. 59, §
2; see Vlasek v. Vlasek, 204 Minn. 331, 331-332, 283 N. W. 489, 490
(1939).
235
ready observed, supra, at 233, that "the practical effect of [a
disclaimer like this one is] to reduce the expected size of [the
disclaimant's] taxable estate and to confer a gratuitous benefit
upon the natural objects of [her] bounty .... " Jewett, 455 U. S.,
at 310. Accordingly, as the Court said in Jewett, "'[a]n important,
if not the main, purpose of the gift tax was to prevent or
compensate for avoidance of death taxes by taxing the gifts of
property inter vivos which, but for the gifts, would be subject in
its original or converted form to the tax laid upon transfers at
death.'" Ibid. (quoting Estate of Sanford v. Commissioner,
308 U. S. 39, 44 (1939)).
Hence the capacious language of Internal Revenue Code §§ 2501(a)(1)
and 2511(a), which encompasses all gratuitous transfers of property
and property rights of significant value. See supra, at
232-233.
"[T]he passage of time is crucial to the scheme of the gift
tax." Jewett, supra, at 316, n. 17 (internal quotation marks and
citation omitted). The opportunity to disclaim, and thereby to
avoid gift as well as estate taxation, should not be so long as to
provide a virtually unlimited opportunity to consider estate
planning consequences. While a decision to disclaim even at the
earliest opportunity may be made with appreciation of potential
estate tax consequences, the passage of time puts the prospective
disclaimant in a correspondingly superior position to determine
whether her need to enjoy the property (and incur a tax for a
subsequent gift of it or an increased estate tax if she retains it)
outweighs the favorable estate and gift tax consequences of a
disclaimer. Although there is no bright-line rule for timeliness in
the absence of a statute or regulation providing one, Mrs. Irvine's
delay for at least 47 years after the clock began running, until
she reached age 68, could not possibly be thought reasonable. By
the date of her disclaimer, Mrs. Irvine was in a position to make a
fairly precise determination of the advantage to be gained by a
transfer diminishing her estate
236
and its eventual taxation. If her decision were treated as
timely, the requirement for a timely election would have no bite at
all.
B
Respondents would avoid this result on two alternative grounds.
They argue first that by its own terms, the Regulation does not
apply on the facts of this case, with the consequence that
taxability under the Internal Revenue Code turns on the efficacy of
the disclaimer under state law. Second, respondents argue that even
if the disclaimer would result in an otherwise taxable transfer in
the absence of the governing Regulation, the tax on transfer of an
interest created by an instrument antedating the enactment of the
gift tax statute would be barred by the statutory prohibition of
retroactive application.
1
The question of the Regulation's applicability under its own
terms need not be resolved here, for the result of its
inapplicability would not be freedom from gift taxation on a theory
of borrowed state law or on any other rationale. The arguments for
inapplicability may therefore be shortly stated, each having been
raised at one point or another in the prior litigation of this
case.
The first argument turns on the Regulation's application to
disclaimers of interests created by what it terms "taxable
transfers," a phrase that on its face presupposes some source of
taxability for the transfer. There was, however, no gift tax when
the trust, including its remainder interests, was created in 1917,
and the gift tax provisions of the Act did not render preenactment
transfers taxable.ll The language is, to say the least, troublesome
to the Government's position that the Regulation applies. The
Government responds to
11 See Revenue Act of 1932, ch. 209, § 501(b), 47 Stat. 245
(nonretroactivity provision).
237
the trouble by citing Treas. Reg. § 25.2518-2(c)(3) 12 (adopted
in 1986, as was the Regulation), which deals with the new regime
(not applicable here) for disclaimers of interests created after
December 31, 1976,13 and defines "taxable transfer" for its
purposes as covering transfers on which no tax is actually imposed
(e. g., because a gift is chargeable against the current
lifetime exemption, 26 U. s. C. § 2503(b)). If this definition is
thought to beg the question, the Government falls back to the
argument that the predecessor regulation was not limited in
application to interests derived from taxable transfers, and there
was no intent in 1986 to narrow the scope covered by the 1958
version of the Regulation in any such way.
The second argument rests on the Regulation's provision that
"the transfer" to which it applies is subject to a timely, tax-free
disclaimer "whether the transfer is effected by the decedent's will
or by the law of descent and distribution," but only "where the law
governing the administration of the decedent's estate" gives the
recipient of the transferred interest a right to refuse it.14 As
against these descriptions of the transfer's testamentary
character, the text says nothing indicating that a taxable transfer
from anyone other than a decedent may create an interest subject to
a disclaimer free of gift tax. If the text is given its strict
reading, then, it has no application to the interest in question
here, which came into being not from a decedent's transfer by will
or from application of the law of descent and distribution, but
12 Treasury Reg. § 25.2518-2(c)(3), 26 CFR § 25.2518-2(c)(3)
(1993), provides in relevant part: "With respect to inter vivos
transfers, a taxable transfer occurs when there is a completed gift
for Federal gift tax purposes regardless of whether a gift tax is
imposed on the completed gift."
13Under the new regime, tax-free disclaimers of interests
created by post-1976 transfers may generally be made within nine
months after the disclaimant has learned of the interest and
reached the age of 21. See 26 U. S. C. §2518; Treas. Reg.
§§25.2518-1, 25.2518-2, 26 CFR §§25.2518-1, 25.2518-2 (1993).
14 See n. 6,
supra.
238
from Mr. Ordway's transfer during his lifetime, creating an
irrevocable inter vivos trust.15
2
Even assuming the soundness of one or both of these arguments
that the Regulation is inapposite, however, the disclaimer would
not escape federal gift taxation by reference to state law rules
giving effect to the disclaimer as causing a transfer to the
beneficiary next in line. Any such reasoning would run counter to
our holding in Jewett. In rejecting the argument that the 1958
version of the Regulation was being applied retroactively to the
taxpayer's disadvantage in that case, the Jewett Court repudiated
the "assumption that [the taxpayer] had a 'right' to renounce the
interest without tax consequences that was 'taken away' by the 1958
Regulation. [The taxpayer] never had such a right." Jewett, 455 U.
S., at 317. Only then did the Jewett Court go on to determine that
the disclaimer at issue did not fall within the exemption from the
gift tax provided by the Regulation, and was consequently taxable.
Id., at 312-316. The Court followed the general and longstanding
rule in federal tax cases that although state law creates legal
interests and rights in property, federal law determines whether
and to what extent those interests will be taxed. See, e. g.,
Burnet v. Harmel,
287
U. S. 103, 110 (1932); Morgan v. Commissioner,
309 U. S. 78,80-81 (1940);
United States v. Mitchell,
403 U. S. 190, 197
(1971). The Court put it this way in United States v. Pelzer,
312 U. S. 399,
402-403 (1941):
"[T]he revenue laws are to be construed in the light of their
general purpose to establish a nationwide scheme of taxation
uniform in its application. Hence their pro-
15 In direct contrast, the disclaimed interest in Jewett was
created by a testamentary trust, and the disclaimer therefore
involved "property transferred from a decedent ... by the
decedent's will .... " Treas. Reg. §25.2511-1(c)(2), 26 CFR
§25.2511-1(c)(2) (1993). See Jewett v. Commissioner,
455 U. S. 305, 306
(1982).
239
visions are not to be taken as subject to state control or
limitation unless the language or necessary implication of the
section involved makes its application dependent on state law."
Cases like Jewett and this one illustrate as well as any why it
is that state property transfer rules do not translate into federal
taxation rules. Under state property rules, an effective disclaimer
of a testamentary gift 16 is generally treated as relating back to
the moment of the original transfer of the interest being
disclaimed, having the effect of canceling the transfer to the
disclaimant ab initio and substituting a single transfer from the
original donor to the beneficiary of the disclaimer. See, e. g.,
Schoonover v. Osborne, 193 Iowa 474, 478, 187 N. W. 20, 22 (1922);
Seifner v. Weller, 171 S. W. 2d 617, 624 (Mo. 1943); Albany Hosp.
v. Hanson, 214 N. Y. 435, 445, 108 N. E. 812, 815 (1915); Burritt
v. Silliman, 13 N. Y. 93, 97-98 (1855); Perkins v. Isley, 224 N. C.
793, 798, 32 S. E. 2d 588, 591 (1945); see also 3 American Law of
Property § 14.15 (A. Casner ed. 1952). Although a state-law right
to disclaim with such consequences might be thought to follow from
the common-law principle that a gift is a bilateral transaction,
requiring not only a donor's intent to give, but also a donee's
acceptance, see, e. g., Wallace v. Moore, 219 Ga. 137, 139, 132 S.
E. 2d 37, 39 (1963); Gottstein v. Hedges, 210 Iowa 272, 275, 228 N.
W. 93, 94 (1929); Pirie v. Le Saulnier, 161 Wis. 503, 507, 154 N.
W. 993, 994 (1915); Blanchard v. Sheldon, 43 Vt. 512, 514 (1871),
state-law tolerance for delay in disclaiming reflects a less
theoretical concern. An impor-
16 See Brown v. Routzahn, 63 F.2d 914, 916 (CA6 1933); 3
American Law of Property § 14.15 (A. Casner ed. 1952). As to
interests created by intestate succession, state laws generally
refused to give effect to disclaimers; the traditional rule is that
"title to the property of an intestate passes by force of the rules
of law ... and that those so entitled by law have no power to
prevent the vesting of title in themselves." Hardenbergh v.
Commissioner,
198 F.2d
63, 66 (CA8), cert. denied, 344 U. S. 836 (1952) (citations
omitted).
240
tant consequence of treating a disclaimer as an ab initio
defeasance is that the disclaimant's creditors are barred from
reaching the disclaimed property. See, e. g., Gottstein v. Hedges,
supra. The ab initio disclaimer thus operates as a legal fiction
obviating a more straightforward rule defeating the claims of a
disclaimant's creditors in the property disclaimed.
The principles underlying the federal gift tax treatment of
disclaimers look to different objects, however. As we have already
stated, Congress enacted the gift tax as a supplement to the estate
tax and a means of curbing estate tax avoidance. See supra, at
234-235. Since the reasons for defeating a disclaimant's creditors
would furnish no reasons for defeating the gift tax as well, the
Jewett Court was undoubtedly correct to hold that Congress had not
meant to incorporate state-law fictions as touchstones of
taxability when it enacted the Act. Absent such a legal fiction,
the federal gift tax is not struck blind by a disclaimer. And as we
have already stated, supra, at 233, without the exception afforded
in the Regulation,17 the gift tax statute provides a general rule
of taxability for disclaimers such as Mrs. Irvine's.
IV
Presumably to ward off any attack on the federal gift tax
resting on the possibility that its retroactive application would
violate due process, see Untermyer v. Anderson,
276 U. S. 440 (1928), §
501(b) of the Act provided that it would "not apply to a transfer
made on or before the date of the enactment of this Act [June 6,
1932]." Revenue Act of 1932, ch. 209, § 501(b), 47 Stat. 245. The
same provision has in substance been carried forward to this day.18
Respondents argue that even if the Regulation applies, or taxation
would
17 Respondents challenge the Regulation's validity only insofar
as it would allegedly sanction a retroactive application of gift
tax. See infra, at 241.
18 See 26 U. S. C. § 2502(b).
241
otherwise be authorized, taxation of the transfer following Mrs.
Irvine's disclaimer would violate this limitation. The language
that respondents use to frame this claim reveals the flaw in their
position. Respondents argue that "[t]he government's interpretation
of the 1986 Regulation to apply to interests created before
enactment of the Act [i. e., to result in taxability] would be a
retroactive application of the Act clearly contrary to
Congressional intent." Brief for Respondents 26. But § 501 merely
prohibited application of the gift tax statute to transfers
antedating the enactment of the Act; it did not prohibit taxation
when interests created before the Act were transferred after
enactment. Such postenactment transfers are all that happened on
the occasion of Mrs. Irvine's disclaimer. The critical events, the
transfers of fractional portions of Mrs. Irvine's remainder to her
children, occurred after enactment of the gift tax, though the
interests transferred were created before that date. To argue
otherwise, that the transfer to be taxed antedated the Act, would
be to cling to the legal fiction that the disclaimer related back
to the moment in 1917 when Lucius P. Ordway established the trust.
This fiction may be indulged under state law as a device to
regulate creditors' rights, but the Jewett Court clearly held that
Congress enacted no such fantasy.19 In sum, the retroactivity
argument is sufficiently answered by our statement in United States
v. Jacobs,
306 U. S.
363, 367 (1939), that a tax "does not operate retroactively
merely because some of the facts or conditions upon which its
application depends came into being prior to the enactment of the
tax."
19While respondents do not take the further step of arguing that
§ 502 should be read to embody the fiction because due process
would otherwise be violated, they do argue that taxation here would
violate due process because Mrs. Irvine would not have been allowed
to make a tax-free disclaimer within a reasonable time after
adoption of the Act. But those facts are not presented here, as
Mrs. Irvine did not disclaim until 1979. See
supra, at
235.
242
Opinion of SCALIA, J.
v
The Commissioner's assessment of federal gift tax on Mrs.
Irvine's 1979 disclaimer was authorized by the statute. The
judgment of the Court of Appeals is reversed.
It is so ordered.
JUSTICE BLACKMUN took no part in the decision of this case.
JUSTICE SCALIA, concurring in part and concurring in the
judgment.
I join the judgment of the Court, and its opinion except for
Part III-A. It seems to me that the basis for the "reasonable time"
limitation in the Regulation cannot be, as the Court says, ante, at
235, the need to deprive the beneficiary of "a virtually unlimited
opportunity to consider estate planning consequences." Considering
estate planning consequences (not a
malum in se) is nowhere
condemned by the tax laws, and I would see no basis for the
Treasury Department's arbitrarily declaring a disclaimer to be a
gift solely in order to deter such consideration. The Secretary
undoubtedly has broad discretion to determine the meaning of the
term "transfer" as it is used in the gift tax statute, and
undoubtedly may indulge an antagonism to estate planning in
choosing among permissible meanings. But "disclaimer after
opportunity for estate tax planning" is simply not a permissible
meaning.
The justification for the "reasonable time" limitation must, as
always, be a textual one. It consists, in my view, of the fact that
the failure to make a reasonably prompt disclaimer of a known
bequest is an implicit acceptance. Qui tacet, consentire videtur.
Thus, a later disclaimer, which causes the property to go to
someone else by operation of law, is effectively a transfer to that
someone else. (The implication from nondisclaimer is much weaker
when the interest is a
243
contingent one, but Jewett v. Commissioner,
455 U. S. 305 (1982),
resolved that issue-perhaps incorrectly.) While state disclaimer
laws have chosen to override the reasonable implication of
nondisclaimer, the Treasury Department regulations correctly (or at
least permissibly) conclude that the federal gift tax does not.
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