United States v. Irvine, 511 U.S. 224, 8 (1994)

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Cite as: 511 U. S. 224 (1994)

Opinion of the Court

able," relying on the provision of Treas. Reg. § 25.2518- 2(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-

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