United States v. Irvine, 511 U.S. 224 (1994)

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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

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