Inherited Property Page2

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Appellants contend that Anthony and Mildred Comparato never had an interest in the settlement proceeds to which the federal tax liens attached as a result of their renunciations pursuant to New York law. The parties stipulated to dismissal of the cross-appeal.

II.

Section 6321 of the Internal Revenue Code provides that "[i]f any person liable to pay any tax neglects or refuses to pay the same after demand, the amount (including any interest, additional amount, addition to tax, or assessable penalty . . .) shall be a lien in favor of the United States upon all property and rights to property, whether real or personal, belonging to such person". 26 U.S.C. §6321 (1988). The scope of §6321 "is broad and reveals . . . that Congress meant to reach every interest in property that a taxpayer might have". United States v. National Bank of Commerce [85-2 USTC ¶9482 ], 472 U.S. 713, 719-20 (1985). Moreover, a tax lien attaches automatically at the time of the assessment and remains in effect until the liability is satisfied. 26 U.S.C. §6322 (1988). State law controls whether a taxpayer has an interest in property to which a lien may attach. Aquilino v. United States [60-2 USTC ¶9538 ], 363 U.S. 509, 512-13 (1960).

Appellants contend that Anthony and Mildred Comparato's renunciations of their interests in their son's estate retroactively extinguished any property interests they may have had in the malpractice claims. Absent the renunciations, appellants do not dispute that Anthony and Mildred Comparato had property interests in the malpractice claims as the presumptive heirs and statutory distributes of their intestate son. Instead, appellants rely on New York law, which provides that "[a]ny beneficiary of a disposition may renounce all or part of his interest". N.Y. Estates, Powers and Trusts Law, §2 -1.11(b)(1) ( McKinney 1981). In New York , a renunciation is deemed "retroactive to the creation of the disposition" and it "has the same effect with respect to the renounced interest as though the renouncing person had predeceased the creator or the decedent". N.Y. Estates, Powers and Trusts Law, §2 -1.11(d) ( McKinney Supp. 1994). This statute creates a legal fiction that allows distributees to avoid attachment by creditors or the payment of taxes. In re Estate of Scrivani, 455 N.Y.S.2d 505, 509, 116 Misc. 2d 204, 207-08 (Sup. Ct. N.Y. County 1982).

Appellants rely on §2 -1.11 in contending that Anthony and Mildred Comparato's renunciations resulted in Diana and Millicent Comparato becoming the exclusive owners of the malpractice claims as of John's death on March 30, 1984. Since this date preceded the IRS's assessments against Anthony and Mildred Comparato, appellants contend that Anthony and Mildred Comparato did not have an interest in the malpractice claims pursuant to §2 -1.11 at the time the federal tax liens attached. We reject this contention.

The court properly held that, once the federal liens attached to Anthony and Mildred Comparato's interests in the malpractice actions, their subsequent renunciations pursuant to state law were not effective against the federal liens. United States v. Mitchell [71-1 USTC ¶9451 ], 403 U.S. 190, 203-04 (1971) (a state law renunciation could not defeat a federal tax lien that attached to property rights that vested prior to the renunciation). The court held that both Anthony and Mildred Comparato had a vested interest in the settlement proceeds from the malpractice claims. Obviously, the government could have enforced the liens against Anthony and Mildred Comparato prior to the attempted renunciations. We hold that, once state law provided both Anthony and Mildred Comparato with a vested interest in the proceeds of the malpractice actions, federal law controlled whether their interests were exempt from levy by the United States . United States v. Rodgers [83-1 USTC ¶9374 ], 461 U.S. 677, 683 (1983) ("[O]nce it has been determined that state law has created property interests sufficient for federal tax lien[s] to attach, state law 'is inoperative to prevent the attachment' of such liens") (quoting United States v. Bess [58-2 USTC ¶9595 ], 357 U.S. 51, 56-57 (1958)).

Section 6334(c) of the Internal Revenue Code provides that no property is exempt from levy other than property specifically made exempt by §6334(a) . 26 U.S.C. §6334 (1988 & Supp. IV 1992). Since §6334(a) does not provide an exemption for Anthony and Mildred Comparato's interests in their son's estate, the federal tax liens are effective against their interests despite their subsequent renunciations pursuant to §2 -1.11. Mitchell, supra, [71-1 USTC ¶9451 ], 403 U.S. at 205 (§6334 does not provide "for automatic exemption of property that happens to be exempt from state levy under state law"). We reject appellants' contention that the retroactive ownership provision in §2 -1.11 may defeat federal tax liens that attached prior to the attempted renunciations. Rodriguez v. Escambron Dev. Corp. [84-2 USTC ¶9698 ], 740 F.2d 92, 98 (1 Cir. 1984) (the legal fiction of retroactive ownership recognized in the adverse possession statute could not be invoked to defeat federal liens). We affirm the court's decision that Anthony and Mildred Comparato could not renounce their interests in their son's estate to defeat federal tax liens that attached prior to their attempted renunciations.

III.

To summarize:

We hold that the court properly held that appellants' renunciations of their interests in their deceased son's estate did not defeat federal tax liens that attached prior to the renunciations.

Affirmed.

 

 

[97-2 USTC ¶50,635] Nelda Huebner Leggett, In the Matter of the Estate of Nelda Huebner Leggett, Deceased, et al., Plaintiffs v. United States of America, Defendant- -Appellee v. Patricia Huebner Schuette, Defendant-Appellant

(CA-5), U.S. Court of Appeals, 5th Circuit, 96-41103, 9/4/97 , 120 F3d 592, 120 F3d 592. Reversing a District Court decision, 96-2 USTC ¶50,698 ; 96-2 USTC ¶60,249

[Code Secs. 6321 and 6323 ]

Lien for taxes: Property subject to: Inherited property: Beneficiaries: Disclaimer: Application of state law.--A federal tax lien on property held by a decedent's estate that was imposed with respect to a beneficiary's tax liabilities was extinguished when the beneficiary executed a timely disclaimer of her interest in the property. Since state ( Texas ) law recognizes no property interest in the right to accept a bequest, the beneficiary lacked a property interest to which the tax lien could attach. Thus, the provision under state law that disclaiming beneficiaries are to be treated as having predeceased the decedent was applicable.

Before: POLITZ, Chief Judge, and HIGGINBOTHAM and SMITH, Circuit Judges.

SMITH, Circuit Judge:

In this tax case, we review a judgment that Patricia Huebner Schuette had a state property interest in property bequeathed to her by her aunt, despite the fact that she had filed a timely disclaimer and never took possession of, or exercised control over, the property. The district court held that a federal tax lien had attached to the property and the disclaimer was ineffective. We reverse.

I.

The relevant facts are not in dispute. In 1995, Schuette owed the Internal Revenue Service ("IRS") nearly $20,000. In May 1995, Schuette's aunt, Nelda Leggett, died testate, leaving one-twentieth of her estate, or $19,500, to Schuette. In June 1995, executors were appointed for Leggett's estate. The executors have distributed all of the estate's assets to the beneficiaries, except for Schuette's share. ¹

In August 1995, Schuette filed a disclaimer of all rights and interests in Leggett's estate. She believes that her disclaimed share should go to her children, Melissa Ann Oakes and Donald Van Schuette II. In September 1995, the estate filed in county court a petition to quiet title and for declaratory judgment. Specifically, the estate requested that the court declare that the IRS has no lien against the estate's property.

The IRS removed the case to federal court. ² Because the facts were uncontested, all parties moved for summary judgment. The IRS asked the court to rule that its lien is valid, and Schuette asked the court to hold that the United States has no interest in the property. The estate expressed disinterest in this question but requested attorney's fees and costs under Tex. Civ. Prac. & Rem.Code Ann. §37.009 ( Vernon 1986) (authorizing the award of fees and costs in a declaratory action case when "equitable and just").

In August 1996, the district court held in favor of the IRS. Instead of deciding the fees issue, the court sua sponte remanded it to the state court. This had the effect of disposing of all claims in the federal case.

II.

A.

The only issue before us is whether the district court correctly interpreted federal and state law in determining whether a federal lien attached to Schuette's share of Leggett's estate. Questions of law resolved on summary judgment are reviewed de novo. See BellSouth Telecomms., Inc. v. Johnson Bros. Corp., 106 F.3d 119, 122 (5th Cir.1997).

When a person fails to pay his taxes, all property rights that he has or acquires thereafter immediately and automatically are subject to a federal tax lien, see 26 U.S.C. §6321, that is not subject to any state laws that govern ordinary liens or to any perfection requirements, see United States v. Security Trust & Sav. Bank [50-2 USTC ¶9492], 340 U.S. 47, 51, 71 S.Ct. 111, 113-14, 95 L.Ed. 53 (1950). Section 6321 is intended to be broad in scope and applies to every interest the taxpayer has in property. See United States v. National Bank of Commerce [85-2 USTC ¶9482], 472 U.S. 713, 719-20, 105 S.Ct. 2919, 2923-24, 86 L.Ed.2d 565 (1985). The section does not, however, create or define what constitutes a property interest. Instead, state law determines whether a taxpayer has a property interest to which a federal lien may attach. See id. at 722-23, [85-2 USTC ¶9482], 105 S.Ct. at 2925-26; United States v. Bess [58-2 USTC ¶9595], 357 U.S. 51, 55, 78 S.Ct. 1054, 1057, 2 L.Ed.2d 1135 (1958). Therefore, we must decide whether, under Texas law, Schuette ever had a property interest in Leggett's estate.

B.

1.

Texas probate law contains two provisions that bear on our determination. The Texas Probate Code provides that "when a person dies, leaving a lawful will, all of his estate devised or bequeathed by such will, and all powers of appointment granted in such will, shall vest immediately in the devisees or legatees of such estate and the donees of such powers. . . ." Tex. Prob.Code Ann. §37 ( Vernon Supp.1997). This rule prevents any lapse in title, insures that someone always is responsible for property taxes, allows family settlements agreements, see In re Estate of Hodges, 725 S.W.2d 265, 267 (Tex.App.--Amarillo 1986, writ ref'd n.r.e.), guarantees that the beneficiaries will receive any income generated by the estate, see Hurt v. Smith, 744 S.W.2d 1, 6 (Tex.1987), and prevents a beneficiary from criminal prosecution for using estate property, see Palmer v. Texas, 764 S.W.2d 332, 334 (Tex.App.--Houston [1st Dist.] 1988, no pet.).

Texas law also provides for the possibility of a disclaimer or renunciation of an inheritance:

Any person . . . who may be entitled to receive any property as a beneficiary and who intends to effect disclaimer irrevocably . . . shall evidence same as herein provided. A disclaimer evidenced as provided herein shall be effective as of the death of decedent and shall relate back for all purposes to the death of the decedent and is not subject to the claims of any creditor of the disclaimant. Unless the decedent's will provides otherwise, the property subject to the disclaimer shall pass as if the person disclaiming . . . had predeceased the decedent. . . .

Tex. Prob.Code Ann. §37A(flush) (Vernon Supp.1997). A disclaimer must follow a certain form, see id. §37A(a), and is irrevocable, see id. §37A(d). It must be made within nine months of death, see id. §37A(a), and cannot be made if the disclaimant has used the property, see id. §37A(g). A disclaimer is distinct from an assignment, which is a gift from an assignor to an assignee of inherited property. See id. §37B(d).

These provisions are somewhat contradictory. Section 37 states that the intended beneficiary had a vested property right from the moment of death, while section 37A teaches that the intended beneficiary never had a property interest at all. Determining which provision is real and which is the fiction decides this issue.

2.

There are two plausible ways to view the statutory scheme. We could regard §37 as the reality and §37A as a legal fiction. Under this view, the intended beneficiaries own the estate's property at the moment of death. If one of them files a valid disclaimer, the property is transferred to other beneficiaries. The legislature, cognizant of the tax consequences of such a transfer, adopted the legal fiction that the intended beneficiary never owned the property. The IRS urges this view, which we will call the "Transfer Theory."

The second possibility is that §37A is the reality and §37 is the legal fiction. Under this theory, property at death goes to the estate of the decedent. The intended beneficiaries may accept or reject their inheritances. If one accepts, the law engages in the legal fiction that he owned the property from the moment of death, thus ensuring the continuity of title and responsibility to pay taxes. Schuette urges this theory, which we will call the "Acceptance-Rejection Theory."

The difference is vital to the outcome of the case. Under the Transfer Theory, Schuette had a property right in Leggett's estate, so the federal lien attached and prevented her from making a disclaimer. Under the Acceptance-Rejection Theory, Schuette never had a property right, as she never accepted the inheritance, so there was nothing to which a federal lien could attach.

C.

At common law, a beneficiary of a will had the power to accept or reject a legacy or devise. The reason was that no person could be made an owner against his consent. An heir at law, on the other hand, became the owner of the property, irrespective of whether he wanted it. Presumably, a contrary rule would allow an heir to defeat an entail.

This distinction had two negative effects. First, it forced heirs to take possession of property they did not want. ³ Second, it had unintended tax consequences. A disclaiming beneficiary of a will was not subject to gift tax liability, see, e.g., Brown v. Routzahn [1933 CCH ¶9231], 63 F.2d 914, 917 (6th Cir.1933), while a disclaiming heir was subject to tax liability, see, e.g., Hardenbergh v. Commissioner [52-2 USTC ¶10,859], 198 F.2d 63, 66 (8th Cir.1952), aff'g [CCH Dec. 18,456], 17 T.C. 166, 1951 WL 326 (1951).

The purpose of the disclaimer law is to rectify this common-law anomaly by putting an heir in the same position as a beneficiary of a will. That is, the purpose is to state that no person, whether heir at law or intended beneficiary of a will, can be forced to take inherited property against his will. See Unif. Disclaimer Of Transfer By Will, Intestacy Or Appointment Act §1 comment, 8A U.L.A. 166, 166-68 (1993). This, of course, is the Acceptance-Rejection Theory.

The Texas courts have adopted this view of §37A: "This "relation back' doctrine is based on the principle that a bequest or gift is nothing more than an offer which can be accepted or rejected." Dyer v. Eckols, 808 S.W.2d 531, 533 (Tex.App.--Houston [14th Dist.] 1991, writ dism'd by agr.). In fact, "acceptance of the inheritance occurs "only if the person making such disclaimer has previously taken possession or exercised dominion and control of such property in the capacity of beneficiary.' " Id. at 534 (quoting Tex. Prob.Code Ann. §37A(f) (Vernon Supp.1991)).

Because the Dyer court adopted the Acceptance-Rejection Theory, it discarded the notion that a disclaimer could be a fraudulent transfer, reasoning that a transfer is impossible unless the "transferor" had rights in the thing "transferred." Because a disclaimant "never possesses the property," he cannot transfer it. Id. ; accord Simpson v. Penner (In re Simpson), 36 F.3d 450, 452-53 (5th Cir.1994) (per curiam) (stating that this is the law in Texas ).

This settles the instant dispute. Under Texas law, Schuette had the right to accept Leggett's intended gift by taking possession of it, by exercising control and dominion over it, or by taking no action within the set time. She also had the right to reject Leggett's intended gift by filing a valid disclaimer within nine months. This right of decision was not, itself, a property right under Texas law. Because Schuette rejected the intended gift, she never had a property right. Therefore, the federal lien had nothing to which to attach.

III.

A.

Texas 's disclaimer statute is based on a uniform act and, therefore, is similar to acts in other states. We recognize that the Second and Ninth Circuits have come to different conclusions from each other, interpreting New York and Arizona law, respectively. Compare United States v. Comparato [94-2 USTC ¶50,354], 22 F.3d 455, 458 (2d Cir.1994) (holding that a disclaimer was rendered ineffective by a federal tax lien) with Mapes v. United States , 15 F.3d 138, 141 (9th Cir.1994) (holding that, because of a timely disclaimer, the federal tax lien did not attach). Because New York law is substantially different from Arizona 's or Texas 's, these cases are reconcilable.

The Second Circuit, citing In re Estate of Scrivani, 116 Misc.2d 204, 455 N.Y.S.2d 505 (N.Y.Sup.Ct.1982), stated that the New York statute "creates a legal fiction that allows distributees to avoid attachment by creditors or the payment of taxes." Comparato [94-2 USTC ¶50,354], 22 F.3d at 457. The view that the disclaimer is a legal fiction is the Transfer Theory and supports the holding that a property right existed before the disclaimer.

In Scrivani, the conservator of Julia Molinelli, an incompetent person, sought to renounce Molinelli's inheritance. See 116 Misc.2d at 204-05, 455 N.Y.S.2d 505. The problem was that a transfer of a "resource considered available" would have made Molinelli ineligible for Medicaid benefits. N.Y. Soc. Serv. Law §366(5)(a) (McKinney 1992 & Supp.1997). The court, therefore, was forced to determine whether a renunciation of an inheritance constitutes the transfer of a resource.

At first, the court appeared to follow the Texas view that "[t]he law forces no one to accept a gift." Scrivani, 116 Misc.2d at 208, 455 N.Y.S.2d 505. The court, however, then held that the Molinelli had "an inchoate property interest" in the right to accept the inheritance. Id. at 209, 455 N.Y.S.2d 505; cf. Adam J. Hirsch, The Problem of the Insolvent Heir, 74 Cornell L.Rev. 587, 601-03 (1989) (arguing that Scrivani is internally contradictory). Therefore, the court reasoned, renouncing the inheritance would constitute the transfer, or rather the waste, of an available resource. ⁴

Because the Comparatos had a property interest in their right to accept the inheritance, the federal tax lien attached to it. Therefore, the Comparatos could not destroy that asset by disclaiming the underlying inheritance. It should be evident, however, that this conclusion derives from the manner in which the New York courts have interpreted that state's disclaimer statute.

As we have explained, Texas law follows the Acceptance-Rejection Theory and does not recognize a property interest in the right to accept a bequest. Our decision today, therefore, is not in conflict with Comparato.

B.

Similarly, the Ninth Circuit's decision in Mapes does not actually conflict with Comparato. There, the court was construing an Arizona statute that had not (and still has not) been interpreted by its courts. Thus, the Ninth Circuit assumed that Arizona 's view of its statutory scheme would follow the majority rule that Texas follows. ⁵ Thus, it may be presumed that Arizona , unlike New York , follows the Acceptance-Rejection Theory and does not recognize a property interest in the right to accept a bequest.

The fact that three states have adopted similar statutory schemes does not necessarily mean that the law functions the same way in each state. New York law creates a property interest in an intended beneficiary's right to accept a gift and may follow the Transfer Theory. Arizona and Texas do not. It is one of the complexities (and, ultimately, one of the strengths) of the federal system that different states may interpret similar statutes in very different ways.

IV.

A.

We pause to address two of the IRS's arguments for ignoring the plain import of Texas law in determining the existence of a state property right. In United States v. Irvine [94-1 USTC ¶60,163], 511 U.S. 224, 114 S.Ct. 1473, 128 L.Ed.2d 168 (1994), the Court held that the disclaimer of a remainder interest in a trust after a reasonable time had passed was a taxable gift, even though the interest was created before the passage of the gift tax. See id. at 226, [94-1 USTC ¶60,163], 114 S.Ct. at 1475. The Court's interpretation of the gift tax does not dictate this court's interpretation of §6321.

Section 6321 adopts the state's definition of property interest. Title 26 U.S.C. §2511(a), which defines "transfer" and "property" for purposes of the gift tax, does not adopt state law. Instead, it aims to reach "every species of right or interest protected by law and having an exchangeable value." Jewett v. Commissioner [82-1 USTC ¶13,453], 455 U.S. 305, 309, 102 S.Ct. 1082, 1086, 71 L.Ed.2d 170 (1982) (quoting S.REP. NO. 72-665, at 39 (1932); H.R.REP. NO. 72-708, at 27 (1932)).

In dictum, the Court recognized the conundrum that we face today and the Second and Ninth Circuits have faced in the past:

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, state-law tolerance for delay in disclaiming reflects a less theoretical concern. An important consequence of treating a disclaimer as an ab initio defeasance is that the disclaimant's creditors are barred from reaching the disclaimed property. 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.

Irvine [94-1 USTC ¶60,163], 511 U.S. at 239-40, 114 S.Ct. at 1481-82 (citations omitted). The Court recognized that the right to disclaim might, under state law, be based on the Acceptance-Rejection Theory and, therefore, not be a legal fiction. The Court then pointed out that allowing a late disclaimer, ⁶ on the other hand, can be explained only as a rule aimed at frustrating creditors.

Because the Texas statute does not allow late disclaimers, it is based solely on the Acceptance-Rejection Theory. Thus, treating this rule as a non-fiction, as Texas caselaw requires, is fully consistent with the principles laid down in Irvine .

B.

In United States v. Mitchell [71-1 USTC ¶9451], 403 U.S. 190, 191, 91 S.Ct. 1763, 1765, 29 L.Ed.2d 406 (1971), Anne Goyne Mitchell, upon divorce, renounced her right to the proceeds of the marital community (and the corresponding obligation to pay the debts of that community). ⁷ Mitchell argued that, because she had renounced the community income, she was not responsible for the corresponding tax liability. See id. at 192, [71-1 USTC ¶9451], 91 S.Ct. at 1765-66.

The Court noted that tax liability follows ownership and, therefore, if Mitchell ever had ownership of the income, she was liable for the tax. See id. at 196-97, [71-1 USTC ¶9451], 91 S.Ct. at 1767-68. The Court proceeded as we do today, examining the state law in great detail. See id. at 197-203, [71-1 USTC ¶9451], 91 S.Ct. at 1768-71. The Court determined that, under Louisiana law, the wife had a property interest in the community's income from the moment of inception, rather than "a mere expectancy." Id. at 199, [71-1 USTC ¶9451], 91 S.Ct. at 1769 (quoting Phillips v. Phillips, 160 La. 813, 107 So. 584, 588 (1926), overruled by Creech v. Capitol Mack, Inc., 287 So.2d 497, 510 (La.1973)).

It should be evident that we have followed the same methodology as did the Mitchell Court . Like that Court, we have examined state law to determine whether it creates a property interest. Unlike the statutory scheme considered in Mitchell , Texas law did not create a property interest for Schuette in Leggett's estate. Although the IRS correctly argues that Mitchell "underscored the supremacy of federal law with respect to the taxation of state created property interests," Mitchell does not disturb the principle that a federal tax lien cannot attach in the absence of a state-created property interest.

V.

In closing, we note that Congress easily can expand the IRS's lien power, if it so desires. For example, Congress can follow what it did with §2511(a), and define property more broadly than state law does. Alternatively, Congress simply can prohibit persons subject to §6321 from filing disclaimers. We decline the IRS's invitation to rewrite the law ourselves, as that power lies exclusively in the legislative branch. See Rodriguez v. INS, 9 F.3d 408, 414 (5th Cir.1993).

REVERSED.

¹ In August 1995, the estate sold certain property. In exchange for the IRS's release of its lien against that property, the estate paid the IRS 1/20 of the proceeds, or $2,515.95. The IRS credited this money against Schuette's debt and rejected the estate's request for a refund. Although our opinion makes it evident that the IRS's position was incorrect, neither party challenges these actions on appeal. We leave the proper resolution of this issue to whatever further proceedings there may be among the parties.

² Under 28 U.S.C. §2410(a)(1), federal district courts have jurisdiction over actions to quiet title to land on which the United States claims to have a lien. Under 28 U.S.C. §1444, such actions are removable.

³ There are many situations, in addition to Schuette's, in which a person rationally might prefer not to accept an inheritance. For example, a person might be offered a plot of real property with several troublesome tenants. The cost in time and aggravation of dealing with the tenants easily might outweigh the value of the property.

⁴ See Scrivani, 116 Misc.2d at 209, 455 N.Y.S.2d 505; see also In re Molloy v. Bane, 214 A.D.2d 171, 175, 631 N.Y.S.2d 910 (N.Y.App.Div.1995) (stating, under similar facts, that "petitioner's renunciation of a potentially available asset was the functional equivalent of a transfer of an asset").

⁵ See Mapes, 15 F.3d at 141; see also Rob ert M. Hoffman & Aaron L. Mitchell, Deceptive Trade Practices and Commercial Torts, 45 SW. L.J. 1667, 1710 (stating that Texas follows the majority rule); cf. Frances Slocum Bank & Trust Co. v. Matter of Estate of Martin, 666 N.E.2d 411, 415 (Ind.Ct.App.1996) (adopting Dyer).

⁶ In Irvine , the disclamation occurred 62 years after the trust's creation. See [94-1 USTC ¶60,163], 511 U.S. at 226-27, 114 S.Ct. at 1475. Texas law, by contrast, prohibits a disclaimer filed more than nine months after death. See TEX. PROB.CODE. ANN. §37A(a) ( Vernon Supp.1997). It is worth noting that the disclaimer in Comparato was filed over seven years after the devisor's death. See [94-2 USTC ¶50,354], 22 F.3d at 456.

⁷ See La. Civ.Code art. 2410 (1870) ("Both the wife and her heirs or assigns have the privilege of being able to exonerate themselves from the debts contracted during the marriage, by renouncing the partnership or community of gains.").

 

 

[95-1 USTC ¶50,058] United States of America , Plaintiff v. Howard S. Grimm, Jr. and Russell Kruse, as Personal Administrator of the Estate of Howard S. Grimm, Deceased, Defendants

U.S. District Court, No. Dist. Ind., Fort Wayne Div., 1:94-CV-95, 10/26/94

[Code Secs. 6321 , 6322 and 7422 ]

Liens: Real property: Credit: Claim not filed.--Federal income tax liens attached to an individual's interest in real property that he received as beneficiary of his father's will because the individual became owner of the interest upon the father's death and prior to the making of the assessments. Although the will postponed the enjoyment of the interest until the final settlement of the estate, the interest nonetheless vested at the time of the father's death under state ( Indiana ) law. No intent on the part of the deceased father to postpone the vesting of the interest was found. Despite a spendthrift clause in the father's will providing for the establishment of a spendthrift trust, no trust had been created, and, therefore, the individual had an interest upon which the government's liens could attach. Additionally, the trust provided for in the will did not meet the requirements of a spendthrift trust because the beneficiary was not prohibited from voluntarily or involuntarily transferring his interest in the trust. In fact, the government would have been able to enforce its lien against the interest whether the trust was a spendthrift trust or a support trust. The individual also failed to produce evidence of an alleged payment to the IRS and did not file an admin istrative claim for a credit. Finally, a motion for certification of a state law question to the state supreme court concerning the individual's interest was denied.

Douglas W. Snoeyenbos, Department of Justice, Washington , D.C. 20530 , for plaintiff. Howard S. Grimm, Jr., P.O. Box 8836, Fort Wayne, Ind. 46898-8836, pro se. Kurt Bentley Grimm, John M. Haecker, Grimm & Grimm, 101 E. Ninth St., Auburn, Ind. 46706-0031, for defendant (Kruse, R.).

Order

This matter is before the court on Defendant Russell Kruse's (hereinafter: "Kruse") Motion for Certification of Question of State Law to Supreme Court of Indiana filed on July 26, 1994, and the United States of America's Motion for Summary Judgment against defendants filed on July 11, 1994. The United States of America filed its Response to Motion for Certification of Question of State Law to Supreme Court of Indiana filed on August 5, 1994 , and supplemented that Response by Order of this court on August 17, 1994 . Both defendant Kruse and defendant Howard S. Grimm, Jr. (hereinafter: "Grimm") filed Responses to the United States of America's Motion for Summary Judgment on July 26, 1994, and July 25, 1994, respectively. The United States of America filed its Reply to Kruse's Response on August 10, 1994 , and filed its Reply to Grimm's Response on August 3, 1994 . The court conducted a hearing in this matter on October 25, 1994 .

Therefore, the matter is fully briefed and is ripe for decision. For the following reasons, defendant Kruse's Motion for Certification of Question of State Law to Supreme Court of Indiana is denied, and the United States of America 's Motion for Summary Judgment is granted.

Factual & Procedural Background

On July 1, 1991 , a delegate of the Secretary of the Treasury made an assessment totalling $74,080.99 against Howard S. Grimm, Jr., for unpaid federal income tax, interest, and penalties for the year 1987. Notice of the assessment and demand for payment were then made upon Grimm. On July 29, 1991 , a delegate of the Secretary of the Treasury made assessments totalling $103,272.53 against Grimm for unpaid federal income tax, interest, and penalties for the years 1988, 1989 and 1990. The assessment for the year 1988 totalled $42,118.99, the assessment for the year 1989 totalled $22,938.51 and the assessment for the year 1990 totalled $38,215.03. Notice of the assessments and demand for their payment were then made upon Grimm.

Howard S. Grimm Sr. died testate in DeKalb County , Indiana on March 4, 1991 . His probated will makes provision for the distribution of his estate. The admin istration of the estate is pending and final distribution has not yet occurred.

The United States of America initiated this lawsuit on April 1, 1994 , claiming Grimm owes the government the amounts assessed above. The government states the will of Howard S. Grimm, Sr., provided at Item V that Grimm was "given, devised, willed and bequeathed" an interest in the estate of Howard S. Grimm, Sr., including certain real property. The government further asserts that the amount of the assessments set forth above are continuing liens as of the dates of assessments upon all property and rights to property of Grimm, including his rights as beneficiary under the will of his father and any real property which passed to Grimm by reason of the death of his father.

The government states that subsequent to July 29, 1991 , Russell Kruse, as Personal Administrator of the estate of Howard S. Grimm, Sr., sold certain real estate, an interest in which had passed to Grimm and which was subject to the liens described above. The government asserts the liens attached to the proceeds of the sale of the real property as the liens had previously attached to the real property itself.

Kruse argues that Grimm has no interest in his father's estate at this time, and therefore, no government lien can attach. Kruse asserts Grimm must survive until the final distribution of the assets of the will before he is entitled to an interest under his father's will. Kruse also maintains that Howard S. Grimm, Sr.'s will automatically provides for the establishment of a discretionary spendthrift trust naming Grimm as beneficiary if Grimm's interest under the will is threatened by any diversion. Therefore, Kruse concludes, Grimm has no property interest in the corpus of the trust to which the government's lien can attach.

Grimm concedes that he is liable to the government for back taxes, interest and penalties, but asserts the amount of the assessments are incorrect in that he should be given credit for payments he allegedly made to the Internal Revenue Service.

The court shall first address Kruse's Motion for Certification, and shall then address the government's Motion for Summary Judgment and the arguments raised by defendants in opposition to that Motion.

Motion for Certification

Kruse moves this court to certify the following state-law question to the Indiana Supreme Court:

Whether and to what extent Howard S. Grimm, Jr. has an interest in property in the estate of his father, Howard S. Grimm to which a federal tax lien can attach?

Kruse asserts that the determination of whether a taxpayer has property or rights to property to which a tax lien can attach is a question of state law, citing Aquilino v. United States [60-2 USTC ¶9538 ], 363 U.S. 509 (1960). The court agrees with the assertion that the determination of property rights to which a federal tax lien can attach is a matter of State law, but disagrees with Kruse's suggestion that the law is unclear in the State of Indiana as to when Howard S. Grimm, Jr. took an interest in his father's estate, thereby allowing a federal tax lien to attach. It is clear that Grimm received an immediate present fixed right of future enjoyment of a one-sixth interest in his father's estate. Accordingly, the court denies Kruse's Motion for Certification of Question of State Law to Supreme Court of Indiana.

Summary Judgment

Summary judgment is proper "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed. R. Civ. P. 56(c). However, Rule 56(c) is not a requirement that the moving party negate his opponent's claim. Fitzpatrick v. Catholic Bishop of Chicago , 916 F.2d 1254, 1256 (7th Cir. 1990). Rule 56(c) mandates the entry of summary judgment, after adequate time for discovery, against a party "who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and in which that party will bear the burden of proof at trial." Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2552-53 (1986). The standard for granting summary judgment mirrors the directed verdict standard under Rule 50(a), which requires the court to grant a directed verdict where there can be but one reasonable conclusion. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250, 106 S.Ct. 2505, 2511 (1986). A scintilla of evidence in support of the non-moving party's position is not sufficient to successfully oppose summary judgment; "there must be evidence on which the jury could reasonably find for the plaintiff." Id. at 2512; In Re Matter of Wildman, 859 F.2d 553, 557 (7th Cir. 1988); Klein v. Ryan, 847 F.2d 368, 374 (7th Cir. 1988); Valentine v. Joliet Township High School District No. 204, 802 F.2d 981, 986 (7th Cir. 1986). No genuine issue for trial exists "where the record as a whole could not lead a rational trier of fact to find for the nonmoving party." Juarez v. Ameritech Mobile Communications, Inc., 957 F.2d 317, 322 (7th Cir. 1992) (quoting Matsushita Electric Industrial Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 1356 (1986)).

Initially, Rule 56 requires the moving party to inform the court of the basis for the motion, and to identify those portions of the "pleadings, depositions, answers to interrogatories, and admission on file, together with the affidavits, if any, which demonstrate the absence of a genuine issue of material fact, Celotex, 477 U.S. at 323, 106 S.Ct. at 2553. The non-moving party may oppose the motion with any of the evidentiary materials listed in Rule 56(c), but reliance on the pleadings alone is not sufficient to withstand summary judgment. Goka v. Bobbitt, 862 F.2d 646, 649 (7th Cir. 1988); Guenin v. Sendra Corp., 700 F. Supp. 973, 974 (N.D. Ind. 1988); Posey v. Skyline Corp., 702 F.2d 102, 105 (7th Cir.), cert. denied, 464 U.S. 960 (1983).

So that the district court may readily determine whether there are genuine issues of material fact, under Local Rule 56.1, the moving party is obligated to file with the court a "Statement of Material Facts" supported by appropriate citation to the record to which the moving party contends there is no genuine issue. In addition, the non-movant is obligated to file with the court a "Statement of Genuine Issues" supported by appropriate citation to the record all material facts to which the non-movant contends there are exists a genuine issue necessary to be litigated. See, Waldridge v. American Hoechst Corp. et al., 24 F.3d 918 (7th Cir. 1994). In ruling on a summary judgment motion the court accepts as true the non-moving party's evidence, draws all legitimate inferences in favor of the non-moving party, and does not weigh the evidence or the credibility of witnesses. Anderson, 477 U.S. at 249-251, 106 S.Ct. at 2511. Furthermore, in determining the motion for summary judgment, the court will assume that the fact as claimed and supported by admissible evidence by the moving party are admitted to exist without controversy, except to the extent that such facts are controverted in the "Statement of Genuine Issues" filed in opposition to the motion. L.R. 56.1.

Substantive law determines which facts are material; that is, which facts might affect the outcome of the suit under the governing law. Anderson, 477 U.S. at 248, 106 S.Ct. at 2510. Irrelevant or unnecessary facts do not preclude summary judgment even when they are in dispute. Id. The issue of fact must be genuine. Fed. R. Civ. P. 56(c), (e). To establish a genuine issue of fact, the non-moving party "must do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita, 475 U.S. at 586, 106 S.Ct. at 1356; First National Bank of Cicero v. Lewco Securities Corp., 860 F.2d 1407, 1411 (7th Cir. 1988). The non-moving party must come forward with specific facts showing that there is a genuine issue for trial. Id. A summary judgment determination is essentially an inquiry as to "whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law." Anderson, 477 U.S. at 251-252, 106 S.Ct. at 2512. Finally, the court notes that, "[i]t is a gratuitous cruelty to parties and their witnesses to put them through the emotional ordeal of a trial when the outcome is foreordained" and in such cases summary judgment is appropriate. Mason v. Continental Illinois Nat'l Bank, 704 F.2d 361, 367 (7th Cir. 1983).

Grimm's Interest Vested Upon the Death of His Father

The government asserts that as a beneficiary under the will of Howard S. Grimm, Sr., Grimm became the owner of an interest in real property upon his father's death on March 4, 1991 . Thus, the federal tax liens attached to Grimm's interest in that real property when the assessments were made on July 1 and July 29, 1991 .

Kruse cites two (2) provisions in the will for the proposition that Grimm has no interest in his father's estate at this time as Grimm has not fulfilled the necessary contingencies entitling him to his interest. Thus, Kruse asserts, there is no interest to which the government's liens can attach. First, Kruse cites Item V of the will which states in pertinent part:

. . . then my entire estate, including the proceeds of Howard S. Grimm Trust admin istered by Fort Wayne National Bank, shall be divided into six equal parts and the following persons and Trustee, to wit: my son, Howard S. Grimm, Jr.; my son, Edgar A. Grimm; Fort Wayne National Bank, Fort Wayne, Indiana, as Trustee for my daughter, Helen J. Grimm Norment, who sometimes refers to herself as Helen J. Cameron; my son, Lloyd R. Grimm; my son, John C. Grimm; and my son, James L. Grimm, are hereby given, devised, willed and bequeathed the one-sixth equal part of my said estate. My Personal Representative, hereinafter named, shall disburse the one-sixth part of my said estate to the Fort Wayne National Bank under the terms of such agreement which I have heretofore entered into with said bank, as Trustee for my daughter, Helen J. Grimm Norment, who sometimes refers to herself as Helen J. Cameron. Each of the other persons shall received their undivided one-sixth part of my said estate and it shall be paid over to them at the time of the final settlement of my said estate, or partial settlement may be made by Order of Court at an earlier date, if the Court shall approve the same.

Second, Kruse cites Item VIII, paragraph nineteen (19) which states:

In the event of the death of any of my sons prior to the ultimate distribution of his respective interest in my estate, then his share of said estate shall go to the surviving children, per stirpes, of such deceased son of mine.

Kruse assets that the final sentence of Item V and Item VIII paragraph nineteen (19) demonstrate Howard S. Grimm, Sr.'s intent that Grimm not receive any interest in the estate until the time of the final settlement or distribution of the estate. The court is not persuaded by Kruse's argument.

The court finds Grimm's interest in his father's estate to have vested on his father's death on March 4, 1991 . A vested estate or interest under a will exists when there is an immediate right of present enjoyment, or a present fixed right of future enjoyment in an ascertained person. 29 I.L.E. Wills §271 . The plain language of the will at Item V indicates that Grimm received a present fixed right of future enjoyment of a one-sixth interest in his father's estate. Grimm was "given, devised, willed and bequeathed" outright a one-sixth equal part of his father's estate. Although Howard S. Grimm, Sr. [,] provided for Grimm's sister to receive an immediate right of present enjoyment of her interest, Grimm and his brothers must wait until the final settlement of the estate before they begin to enjoy their share respective interest. Although under Item V and Item VIII paragraph nineteen (19) of the will Grimm must wait until the final settlement of the estate before he may enjoy his interest, his interest was vested at the time of his father's death.

Moreover, under Indiana rules of construction of wills, the court finds Grimm's one-sixth interest to have vested upon his father's death. The law favors early vesting of estates. Heilman v. Heilman, 28 N.E. 310, 311 ( Ind. 1891). "It is familiar law that, in the absence of a clear manifestation of the intention of the testator to the contrary, estates shall be held to vest at the earliest period. The intent to postpone the vesting of the estate must be clear and manifest, and must not arise by mere inference or construction." Id. A testamentary devise may be vested in interest although the possession or actual enjoyment is postponed to a future time. Moore v. Gary , 48 N.E. 630 ( Ind. 1897). When an interest or estate has been given in clear terms in one clause of a will, such interest or estate cannot be taken away or cut down by a subsequent clause which is not equally clear and decisive of the testator's intent. In re Carney's Estate, 86 N.E. 400, 402 ( Ind. 1908).

Words in a will postponing estates are generally construed to refer to the beginning of possession and enjoyment of the estate and not the vesting thereof, Heilman, 28 N.E. at 311, and in determining the question of whether a postponement or contingency relates to a possession or enjoyment of the devise rather than to the devise itself, the courts will, in accordance with the general rule favoring vested estates, construe the postponement or contingency to relate to the possession or enjoyment rather than to the devise itself, if a contrary intention is not clearly manifested, Aldred v. Sylvester, 111 N.E. 914, 916 (Ind. 1916).

29 I.L.E. Wills §273 .

Applying the above rules of construction, the court cannot find a clear and manifest intent of the testator to postpone the vesting of Grimm's interest. Item V of the will clearly vests Grimm with a one-sixth interest in his father's estate coupled only with a postponement of enjoyment until the estate is finally settled. See, Quinn v. Peoples Trust & Savings Co., 60 N.E.2d 281, 288 ( Ind. 1945). Item VIII, paragraph nineteen (19), speaks only to the real property of which Howard S. Grimm, Sr. was seized at the time of his death, and how it is to be open to purchase by option by certain beneficiaries in the will or ultimately distributed if no one exercises the option. Pursuant to the rules of construction discussed above and specifically the rule announced in In re Carney's Estate, 86 N.E. 400, 402 (Ind. 1908), the court cannot find an intent on the part of Howard S. Grimm, Sr. to postpone the vesting of Grimm's interest in the estate. Grimm is vested in fee simple subject to complete divestment if he fails to live until the ultimate distribution of his respective interest. See, Matter of Estate of Spanley, 458 N.E. 2d 289, 291 (Ind. App. 1984) (holding once the beneficiary satisfied the condition of surviving the testator by six (6) months she could not be divested of her share of the estate); see also, Roger A. Cunningham et al., The Law of Property §2.8 (1984). ¹ The court finds Grimm to have taken a vested interest in his father's estate at the time of his father's death on March 4, 1991 .

The Spendthrift Clause is Ineffective Against the Liens

Having determined that Grimm is presently vested with a one-sixth interest in his deceased father's estate, the court must next determine whether the government has a valid lien upon that interest.

A federal tax lien arises on the date the taxes are assessed and attaches to all property and rights to property of the taxpayer. 26 U.S.C. §6321 , 6322 . ² The broad language of the statute indicates Congress meant to reach every interest in property a taxpayer may have. United States v. Nat'l Bank of Commerce [85-2 USTC ¶9482 ], 472 U.S. 713, 720 (1985). The court must look to state law to determine what property or rights to property the taxpayer possesses to which the federal lien may attach. Aquilino v. United States [60-2 USTC ¶9538 ], 363 U.S. 509, 512-515 (1960).

As set forth supra, this court has already determined, according to the laws of the State of Indiana , that Grimm has a vested interest in the estate of his deceased father which came into existence on March 4, 1991 . Thus, Grimm had a right to property to which the federal liens attached on July 1, 1991 , and July 29, 1991 . The only question left unanswered is whether any obstacle exists that prevents the government from attaching its lien to Grimm's interest in his deceased father's estate.

Kruse argues that Item XXXVI of Howard S. Grimm, Sr.'s will prevents the federal tax lien from attaching to Grimm's interest under the will. Kruse asserts that that provision is of a type commonly referred to as a "Spendthrift Clause" which dictates that a beneficiary's inheritance shall not be subject to claims of creditors. Item XXXVI states in pertinent part:

I hereby will and direct that no interest, inheritance, or option of any beneficiary of my estate shall be subject to any debt, claim, demand, obligation, anticipations, assignments, sales, pledges, contracts or liabilities of any beneficiary of my estate and no execution, attachment, garnishment, or other process shall ever issue against such inheritance of any beneficiary of my estate by creditors of said beneficiary, or by anyone. If the Personal Representative shall believe that the interest of a beneficiary or beneficiaries is threatened to be diverted in any manner from the purposes of my said Last Will and Testament, or any Codicil or Codicils thereto, or Trusts created thereunder, then the inheritance, property, or Trust that would have gone to said beneficiary under this will shall go to and be held by the The Auburn State Bank, Auburn, Indiana, as Trustee for said beneficiary of this will and said Trustee shall apply payments in its discretion and in such manner as shall contribute to the maintenance, comfort, and necessities of the beneficiary. Whenever the Trustee shall be satisfied that such diversion is no longer effective or threatened, it shall distribute the principal and income of said Trust to the beneficiary for whom it is holding said inheritance . . .

Kruse asserts that the above Item provides for the establishment of a discretionary spendthrift trust in case he believes Grimm's interest under the will is threatened with diversion and prevents the government from attaching its lien to Grimm's interest because Grimm has no property interest in the trust. ³

However, at the present time, ⁴ no trust has been established. Grimm is presently vested with a present fixed right of future enjoyment of a one-sixth interest in his father's estate. Thus, per the ruling of this court, infra, the government's liens are foreclosed upon Grimm's one-sixth interest in his father's estate upon the date of entry of this Order. Because no trust exists, Kruse is precluded from arguing that the trust relieves Grimm of any interest in his father's estate upon which the government can attach or foreclose its liens.

Moreover, even if a trust existed on the date of entry of this Order naming Grimm as beneficiary and The Auburn State Bank as trustee, the court finds that the operative language in Howard S. Grimm, Sr.'s will does not provide for the establishment of a spendthrift trust or a discretionary trust, but for the establishment of a support trust.

A spendthrift trust is one in which the beneficiary is unable to transfer, assign, or alienate his right to future payments of income or principal, and which provides the beneficiary's creditors are unable to subject the beneficiary's interest to the payment of their claim while in the hands of the trustee. Brosamer v. Mark, 540 N.E.2d 652 ( Ind. App. 1989). See also, I.C. 30-4-3-2. There are three requirements for a trust to be a spendthrift trust. First, the settlor may not be a beneficiary of the trust. Second, the beneficiary must not have any present dominion or control over the plan corpus. Third, the trust must contain an anti-alienation clause which prevents the beneficiary from voluntarily or involuntarily transferring his interest in the trust. Matter of Jones, 43 B.R. 1002 (N.D.Ind. 1984).

The third requirement is lacking in this case. The will states that no interest devised under the will is to be subjected to the creditors of any beneficiary, and then states that if an interest of any beneficiary is threatened, the interest is to be placed in trust. The subsequent language which actually establishes the trust fails to contain any provision that prohibits the beneficiary from voluntarily or involuntarily transferring his interest in the trust. Because the language establishing the trust fails to restrict the beneficiary's ability to transfer his interest in the trust to another party or creditor while the interest is under the control of the trustee, the trust is not a spendthrift trust.

Furthermore, the court finds that the trust to be created under the terms of the will is a support trust. The law applicable is clearly stated in Clay v. Hamilton, 63 N.E. 2d 207 (Ind. App. 1945) which adopted the Restatement of Trusts §154:

Except as stated in §156 and 157, if by the terms of a trust it is provided that the trustee shall pay or apply only so much of the income and principal or either as is necessary for the education or support of the beneficiary, the beneficiary cannot transfer his interest and his creditors cannot reach it.

Clay v. Hamilton , 63 N.E. 2d 207, 210-11 ( Ind. App. 1945).

Under the terms of the will, the trust is to provide for the "maintenance, comfort, and necessities of the beneficiary." The use of this phrase in the establishment of the trustee's duties indicates the settlor's intent to ensure that Grimm had a means of support for the necessities of life. Hence, the proposed trust is a trust for support.

The Restatement provides further:

Although a trust is a spendthrift trust or a trust for support, the interest of the beneficiary can be reached in satisfaction of an enforceable claim against the beneficiary,

(d) by the United States or a State to satisfy a claim against the beneficiary.

Restatement of Trusts (Second) §157 (1959).

Thus, through the operation of the Restatement, the government would be entitled to assert its lien against Grimm's interest under the terms of the support trust. ⁵

In addition, even if the court were to find that the trust, to be created under the terms of the will was to be a spendthrift trust or a support trust, the government would be entitled to foreclose upon whatever interest Grimm received under the terms of the trust by operation of federal law. A valid spendthrift trust does not defeat attachment and foreclosure of a federal tax lien. First Northwestern Trust Co. v. Internal Rev. Serv., 622 F.2d 387, 390 (8th Cir. 1990) (holding the income from a spendthrift trust is not immune from federal tax liens even when the elements of a spendthrift trust are combined with provisions granting discretionary powers of distribution to the trustee); Leuschener v. First Western Bank and Trust Co. [58-2 USTC ¶9723 ], 261 F.2d 705, 707-08 (9th Cir. 1958) (citing Restatement, Trusts, §157); United States v. Dallas Nat'l Bank [46-1 USTC ¶9117 ], 152 F.2d 582, 585-86 (5th Cir. 1945) (holding that the federal tax laws are part of the supreme law of the land and when in conflict state laws and provisions of a will must yield); United States v. Taylor [66-2 USTC ¶9522 ], 254 F.Supp. 752 (N.D. Cal 1966); Clay v. Hamilton , 63 N.E.2d 207 ( Ind. App. 1945). Thus, the government would be entitled to attach and foreclose its lien upon any income Grimm would receive as beneficiary under the trust.

Finally, to the extent the "Spendthrift" clause could be construed as a "forfeiture" clause which would divest Grimm of his interest upon a threatened diversion, such forfeiture clauses are against public policy and are inapplicable against the United States and a federal tax lien United States v. Mitchell [71-1 USTC ¶9451 ], 403 U.S. 190 (1971); United States v. Comparato [94-2 USTC ¶50,354 ], 22 F.3d 455 (2nd Cir. 1994); United States v. Riggs Nat'l Bank [86-1 USTC ¶9389 ], 636 F.Supp. 172 (D.D.C. 1986); United States v. Taylor [66-2 USTC ¶9522 ], 254 F.Supp. 752 (N.D. Cal 1966). Once the federal lien attached, a subsequent renunciation or forfeiture under state law is ineffective against the federal lien.

In its Complaint, the United States of America requests the court to enter judgment in its favor in the amount of $198,610.39 and foreclose on Grimm's interest in his father's estate. In paragraph one (1) of his three (3) paragraph Answer, Grimm admits to owing the above amount. In paragraph three (3), Grimm states that he paid approximately $26,000 to $28,000 to the Internal Revenue Service (hereinafter: "IRS") in the early 1980's, but that the IRS refuses to credit these funds against his present charges consisting of taxes, penalties and interest claimed in this suit.

In his Response, Grimm requests that "any judgment rendered against him be only in the amount of $155,604.52 minus credits for payments in the amount of $262.50 and minus the amount together with interest presently held by the Internal Revenue Service promised him as a credit against his total tax liability." Grimm makes this statement based upon the alleged acknowledgment by the Special Problems and Resolutions Section of the IRS that it has a payment from Grimm of approximately $28,000, and based upon a letter he received from plaintiff's attorney dated June 24, 1994, which Grimm maintains demonstrates his total tax liability to be $177,353.52; minus a credit of $12,000 for the year 1989, and minus a credit of $9,749.00 plus several payments of $262.50 each for the year 1987.

Grimm's reliance upon the June 24, 1994 , letter as representative of the final amount owed to the United States of America is misplaced. The final sentence of the letter states, "Penalties and interest continue to accrue on your liabilities as provided by law." The Internal Revenue Code, 26 U.S.C. §6601 , provides that interest on paid taxes accrues from the last date prescribed for payment at the underpayment rate prescribed by 26 U.S.C. §6621 . Furthermore, interest compounds daily. 26 U.S.C. §6622 . The interest and penalties accrue by operation of statute, and thus, the amount owed is a matter of law and is not something the government must demonstrate as an evidentiary matter. See, United States v. Schroeder [90-1 USTC ¶50,250 ], 900 F.2d 1144, 1150, n.5 (7th Cir. 1990).

As to the approximately $28,000 of which Grimm asserts the IRS promised him as a credit against his total tax liability, Grimm has failed to produce any evidence that such a payment was ever made. Furthermore, Grimm indicated in open court that the payment in question does not relate specifically to the federal income taxes at issue in this lawsuit. Grimm must show that he intended for the payment to be applied to one of the tax years at issue before the amount of the judgment against him for those years could be reduced. Moreover, to the extent Grimm is requesting a credit or refund, he has not filed an admin istrative claim, and therefore, cannot assert a counterclaim. 26 U.S.C. §7422 ; Goulding v. United States [91-1 ustc ¶50,185 ], 929 F.2d 329 (7th Cir.), cert. denied, 113 S.Ct. 188.

In any event, as the government indicated in open court, Grimm is entitled to a credit for any payments he has made to the IRS once Grimm proves the existence of the payments to the satisfaction of the IRS. However, the issue of those credits is not at issue before this court.

Conclusion

For all of the foregoing reasons, plaintiff's Motion for Summary Judgment against defendants filed on July 11, 1994 is GRANTED.

It is further ORDERED that judgment is entered with respect to the assessments described in paragraphs six (6) and seven (7) of the complaint in favor of the United States of America and against Howard S. Grimm, Jr. in the amount of $198,610.39 plus accrued interest and other additions pursuant to law accruing after March 1, 1994.

It is further ORDERED that the United States of America has valid and subsisting liens on all property and rights to property belonging to Howard S. Grimm, Jr., including the proceeds of the sale of the real estate in which Howard S. Grimm, Jr. held an interest which was sold by Russell Kruse as Personal Administrator of the Estate of Howard S. Grimm, Sr., deceased, said proceeds now being held by Russell Kruse as Personal Administrator of the Estate of Howard S. Grimm, Sr., and Howard S. Grimm, Jr.'s interest as a beneficiary of the Estate of Howard S. Grimm, Sr., deceased.

It is further ORDERED that the United States of America's federal tax liens are foreclosed upon the interest of Howard S. Grimm, Jr., in the Estate of Howard S. Grimm, Sr., deceased, and on the proceeds of the sale of the real property held by Russell Kruse as Personal Administrator of the Estate of Howard S. Grimm, Sr., deceased, and that the proceeds of the sale of the real property held by Russell Kruse as Personal Administrator of the Estate of Howard S. Grimm, Sr., deceased, and any distribution to or on behalf of Howard S. Grimm, Jr., from the Estate of Howard S. Grimm, Sr., deceased, shall first be paid to the United States of America in an amount sufficient to satisfy the federal tax liens.

¹ The court notes Kruse argues that Grimm has no interest in his father's estate at this time, but fails to identify what interest, if any, Grimm has in his father's estate, either in the form of a present interest or a future interest.

² 26 U.S.C. §6321 states:

If any person liable to pay any tax neglects or refuses to pay the same after demand, the amount (including any interest, additional amount, addition to tax, or assessable penalty, together with any costs that may accrue in addition thereto) shall be a lien in favor of the United States upon all property and rights to property, whether real or personal, belonging to such person.

26 U.S.C. §6322 states:

Unless another date is specifically fixed by law, the lien imposed by section 6321 shall arise at the time the assessment is made and shall continue until the liability for the amount so assessed (or a judgment against the taxpayer arising out of such liability) is satisfied or becomes unenforceable by reason of lapse of time.

³ "In general, a spendthrift trust is one in which the beneficiary is unable to transfer, assign, or alienate his right to future payments of income or principal, and which provides the beneficiary's creditors are unable to subject the beneficiary's interest to the payment of their claims while in the hands of the trustee." Brosamer v. Mark, 540 N.E.2d 652, 654-55 ( Ind. App. 1989).

⁴ During the October 25, 1994 hearing, Mr. Kurt B. Grimm informed the court that no trust had been created naming Howard S. Grimm, Jr. as beneficiary and The Auburn State Bank as trustee.

⁵ The court in Clay also relied upon §157 of the Restatement of Trusts for the proposition that a beneficiary's interest in a spendthrift or support trust can be reached by a certain class of creditors. The Restatement of Trusts (Second) §154 and §157 relied upon by this court, do not differ from the Restatement of Trusts relied upon by the court in Clay.

 

 

[95-1 USTC ¶50,079] Rebecca S. Woods, Individually and as Administratrix of the Estate of Mary Ruth Simpson, Plaintiff-Appellee v. David Simpson, Jimmi Simpson Jones, United States Department of Treasury, Internal Revenue Service (93-6478), Commonwealth of Kentucky, Revenue Cabinet (93-6590), Defendants-Appellees, The Commonwealth of Kentucky Revenue Cabinet (93-6478), United States Department of Treasury, Internal Revenue Service (93-6590), Defendants-Appellants

(CA-6), U.S. Court of Appeals, 6th Circuit, 93-6478, 93-6590, 2/8/95 , 46 F3d 21, 46 F3d 21. Reversing and remanding a District Court decision, 93-2 USTC ¶50,377

[Code Secs. 6323 and 6334 ]

Property exempt from levy: Child support: State liens: Priority: Kentucky.--An individual's inheritance that was subject to federal and state (Kentucky) tax liens was not exempt from levy in satisfaction of delinquent taxes despite the existence of his former wife's judgment lien for child support. The inheritance did not qualify as "other income" under the statutory exception for judgments for the support of minor children. "Other income" refers to amounts received for services rendered, such as bonuses, tips, fees, and commissions. Further, the federal tax lien was superior to the earlier recorded state tax lien because the two liens attached simultaneously when the individual received the inheritance. Also, the federal lien was superior to the former wife's judgment lien because it attached before the lien for child support was recorded. Therefore, since the individual's federal tax liability exceeded the amount of his inheritance, the government was entitled to the entire inheritance.

David J. Kellerman, Middleton & Rautlinger, 2500 Brown & Williamson Tower, Louisville, Ky. 40202, for plaintiff-appellee (Woods, R.S.). R. Thomas Blackburn, Jr., 2301 S. Third St. , Louisville , Ky. 40201 , for defendant-appellee (Simpson, D.B.). Michael F. Spalding, Assistant United States Attorney, 510 W. Broadway, Louisville, Ky. 40202, Gary R. Allen, Acting Chief, David C. Hickman, Joan I. Oppenheimer, John A. Dudeck, Bruce R. Ellisen, Department of Justice, Washington, D.C. 20530, for defendant-appellee (U.S.). Michael F. Spalding, Assistant United States Attorney, Gary R. Allen, Acting Chief, David C. Hickman, Joan I. Oppenheimer, John A. Dudeck, Bruce R. Ellisen, for defendant-appellee (I.R.S.). Arnold C. Jones, Revenue Cabinet Enforcement Legal Section, P.O. Box 491 , Frankport , Ky. 40602 , for defendant-appellant ( Commonwealth of Ky. ).

Before: RYAN and BATCHELDER, Circuit Judges; and EDGAR, District Judge. ^*

EDGAR, District Judge:

In this interpleader action the United States of America and the Commonwealth of Kentucky appeal the decision of the district court on cross motions for summary judgment establishing the priority of competing federal and state tax liens, and state court judgments for child support. The district court determined that the child support judgments are to be paid from the interpleaded funds prior to satisfaction of the federal tax lien. We REVERSE.

I.

Mary Ruth Simpson died on November 1, 1989 . Rebecca S. Woods, admin istratrix of the estate of Mary Ruth Simpson, was required by Mrs. Simpson's will to distribute a share of the estate's residue to David B. Simpson, one of Mrs. Simpson's children. David Simpson's share amounted to $76,411.20, and this sum was paid into state court by the admin istratrix who filed an interpleader action against four claimants: David Simpson, the United States Department of the Treasury, Internal Revenue Service; the Commonwealth of Kentucky Revenue Cabinet ; and David Simpson's former wife, Jimmi Jones. The United States removed the case to federal court.

David Simpson's claim to the interpleaded funds was dismissed by the district court. He has not appealed. The United States ' claim is for David Simpson's unpaid income taxes, penalties and lien fees for the years 1973 through 1987 totaling $331,434.52. The United States filed a notice of federal tax lien with the Jefferson County, Kentucky Court Clerk on October 13, 1988 . The Commonwealth of Kentucky had recorded its lien for state taxes on July 28, 1988 . As of March 25, 1993 , David Simpson owed Kentucky $27,498.58. Jimmi Jones obtained civil judgments in 1980 and 1989 against David Simpson for back child support. She recorded notices of her judgment lien on March 21, 1990 . ¹ As of September 30, 1993 , the unpaid balance of these judgments was $23,955.22.

II.

There is no question that the lien of the United States is superior to that of the Commonwealth of Kentucky . Both the federal and state tax liens were filed before the debtor, David Simpson, acquired his inheritance. Even though Kentucky 's lien was recorded before that of the United States , these liens attached simultaneously when David Simpson acquired his property interest in the estate of Mary Simpson at the time of her death. The United States lien, therefore, has priority. United States v. McDermott [93-1 USTC ¶50,164 ], -- U.S. --, 113 S. Ct. 1526, 1530, 123 L.Ed.2d 128, 136 (1993).

The lien of the United States is also prior to Jimmi Jones' judgment lien. The federal lien was perfected and attached to David Simpson's acquired property before Jimmi Jones recorded her lien on March 21, 1990 . "Absent provision to the contrary, priority for the purposes of federal law is governed by the common-law principle that 'the first in time is the first in right.' " McDermott [93-1 USTC ¶50,164 ], 113 S.Ct. at 1528, 123 L.Ed.2d at 133 (citing United States v. New Britain [54-1 USTC ¶9191 ], 347 U.S. 81, 85 (1954)).

The district court decided that 26 U.S.C. §6334(a)(8) exempted Jimmi Jones' claim from the federal tax lien. We think not. 26 U.S.C. §6334(a)(8) exempts from Internal Revenue Service levy the following:

(8) Judgments for Support of Minor Children.--If the taxpayer is required by judgment of a court of competent jurisdiction, entered prior to the date of levy, to contribute to the support of his minor children, so much of his salary, wages, or other income as is necessary to comply with such judgment.

We conclude that David Simpson's inheritance is not "other income" specified by 26 U.S.C. §6334(a)(8) . In so concluding we are guided by the ejusdem generis rule of statutory construction. The general term, "other income," should be "understood in light of the specific terms that surround it." Kurinsky v. United States , 33 F.3d 534, 596-97 (6th Cir. 1994). More specifically, "where general words follow specific words in a statutory enumeration, the general words are construed to embrace only objects similar in nature to those objects enumerated by the preceding specific words." 2A NORMAN J. SINGER, SUTHERLAND STATUTES AND STATUTORY CONSTRUCTION §47.17, at 188 (5th ed. 1992). Here, an inheritance is not in the same category as salary and wages. This is borne out by reference to another part of the levy exemption statute, 26 U.S.C. §6334(d) , which provides an exemption in specified amounts for "wages, salary, and other income" received by individuals on a weekly and other than weekly basis. Clearly "other income" refers to items received by individuals for services rendered, such as bonuses, tips, commissions, and fees. This conclusion derives further support from the proposition that tax exemptions are to be narrowly construed. United States v. Burke [92-1 ustc ¶50,254 ] ,-- U.S. --, 112 S.Ct. 1867, 1876, 119 L.Ed.2d 34, 49 (1992) (Scalia, J., concurring); United States v. Centennial Savings Bank [91-1 ustc ¶50,188 ], 499 U.S. 573, 583-84 (1991); Commissioner v. Jacobson [49-1 ustc ¶9133 ], 336 U.S. 28, 49 (1949); Elam v. Commissioner [73-1 ustc ¶9456 ], 477 F.2d 1333, 1335 (6th Cir. 1973). Given our conclusion that 26 U.S.C. §6334(a)(8) does not exempt an inheritance from levy, we need not decide whether 26 U.S.C. §6334 also operates to exempt certain property from a 26 U.S.C. §6321 federal lien for taxes, nor need we decide whether the Commonwealth of Kentucky prevails on a theory that it is entitled to "circular priority" on the authority of United States v. City of New Britain [54-1 ustc ¶9191 ], 347 U.S. 81 (1954).

III.

Since the tax liability to the United States is well in excess of David Simpson's inheritance, the United States is entitled to the entire interpleaded fund except for $1,211.38 which the district court awarded to plaintiff's attorney as an admin istrative expense. The judgment of the district court is REVERSED and this case is REMANDED to the district court for proceedings consistent with this opinion.

^* The Honorable R. Allan Edgar, United States District Judge for the Eastern District of Tennessee, sitting by designation.

¹ This lien appears to have been recorded only against David Simpson's real property. We will, however, for the purposes of this case, regard it as applicable to all of David Simpson's real and personal property.

 

 

[99-2 USTC ¶51,006] Rohn F. Drye, Jr., et al. v. United States

Supreme Court of the United States, 98-1101, 12/7/99 , 120 SCt 474, Affirming a Court of Appeals decision, 98-2 USTC ¶50,651

152 F3d 892.

On Writ of Certiorari to the United States Court of Appeals for the Eighth Circuit.

[Code Secs. 6321 , 6323 and 6334 ]

Tax liens: Property subject to: Relinquishments and disclaimers: Validity and priority against third parties: Inherited property: Property exempt from levy: State exemption laws.--Federal tax liens attached to a delinquent taxpayer's interest in an estate, despite his disclaimer. Under state ( Arkansas ) law, the interest was a right to property because it had pecuniary value, was transferable and arose at the time the estate was created. State law also allowed an heir to nullify the interest by making a disclaimer that related back to the creation of the interest. However, once state law creates a property interest, federal law governs the application of tax liens. Federal law defines "property subject to liens" in the broadest possible terms, and Code Sec. 6334 does not exempt disclaimed property from liens. Thus, the liens attached to the interest immediately upon the creation of the estate, and they were unaffected by taxpayer's subsequent disclaimer.

Syllabus

In 1994, Irma Drye died intestate, leaving a $233,000 estate in Pulaski County , Arkansas . Petitioner Rohn Drye, her son, was sole heir to the estate under Arkansas law. Drye was insolvent at the time of his mother's death and owed the Federal Government some $325,000 on unpaid tax assessments. The Internal Revenue Service (IRS) had valid tax liens against all of Drye's "property and rights to property" pursuant to 26 U.S.C. §6321. Drye petitioned the Pulaski County Probate Court for appointment as admin istrator of his mother's estate and was so appointed. Several months after his mother's death, Drye resigned as admin istrator after filing in the Probate Court and county land records a written disclaimer of all interests in the estate. Under Arkansas law, such a disclaimer creates the legal fiction that the disclaimant predeceased the decedent, consequently, the disclaimant's share of the estate passes to the person next in line to receive that share. The disavowing heir's creditors, Arkansas law provides, may not reach property thus disclaimed. Here, Drye's disclaimer caused the estate to pass to his daughter, Theresa Drye, who succeeded her father as admin istrator and promptly established the Drye Family 1995 Trust (Trust). The Probate Court declared Drye's disclaimer valid and accordingly ordered final distribution of the estate to Theresa, who then used the estate's proceeds to fund the Trust, of which she and, during their lifetimes, her parents are the beneficiaries. Under the Trust's terms, distributions are at the discretion of the trustee, Drye's counsel, and may be made only for the health, maintenance, and support of the beneficiaries. The Trust is spendthrift, and under state law, its assets are therefore shielded from creditors seeking to satisfy the debts of the Trust's beneficiaries. After Drye revealed to the IRS his beneficial interest in the Trust, the IRS filed with the county a notice of federal tax lien against the Trust as Drye's nominee, served a notice of levy on accounts held in the Trust's name by an investment bank, and notified the Trust of the levy. The Trust filed a wrongful levy action against the United States in the United States District Court for the Eastern District of Arkansas. The Government counterclaimed against the Trust, the trustee, and the trust beneficiaries, seeking the reduce to judgment the tax assessments against Drye, confirm its right to seize the Trust's assets in collection of those debts, foreclose on its liens, and sell the Trust property. On cross-motions for summary judgment, the District Court ruled in the Government's favor. The Court of Appeals for the Eighth Circuit affirmed, reading this Court's precedents to convey that state law determines whether a given set of circumstances creates a right or interest, but federal law dictates whether that right or interest constitutes "property" or the "right[t] to property" under §6321.

Held: Drye's disclaimer did not defeat the federal tax liens. The Internal Revenue Code's prescriptions are most sensibly read to look to state law for delineation of the taxpayer's rights or interests in the property the Government seeks to reach, but to leave to federal law the determination whether those rights or interests constitute "property" or "rights to property" under §6321. Once it has been determined that state law creates sufficient interests in the taxpayer to satisfy the requirements of the federal tax lien provision, state law is inoperative to prevent the attachment of the federal liens. United States v. Bess [58-2 USTC ¶9595], 357 U.S. 51, 56-57, Pp. 5-11.

(a) To satisfy a tax deficiency, the Government may impose a lien on any "property" or "rights to property" belonging to the taxpayer. §§6321, 6331(a). When Congress so broadly uses the term "property" this Court recognizes that the Legislature aims to reach every species of right or interest protected by law and having an exchangeable value. E.g., Jewett v. Commissioner [82-1 USTC ¶13,453], 455 U.S. 305, 309. Section 6334(a), which lists items exempt from levy, is corroborative. Section 6334(a)'s list is rendered exclusive by §6334(c), which provides that no other "property or rights to property shall be exempt." Inheritances or devises disclaimed under state law are not included in §6334(a)'s catalog of exempt property. See, e.g., Bess [58-2 USTC ¶9595], 357 U.S. , at 57. The absence of any recognition of disclaimers in §§6321, 6322, 6331(a), and 6334(a) and (c), the relevant tax collection provisions, contrasts with §2518(a), which renders qualifying state-law disclaimers "with respect to any interest in property" effective for federal wealth-transfer tax purposes and for those purposes only. Although this Court's decisions in point have not been phrased so meticulously as to preclude the argument that state law is the proper guide to the critical determination whether Drye's interest constituted "property" or "rights to property" under §6321, the Court is satisfied that the Code and interpretive case law place under federal, not state, control the ultimate issue whether a taxpayer has a beneficial interest in any property subject to levy for unpaid federal taxes. Pp. 5-7.

(b) The question whether a state-law right constitutes "property" or "rights to property" under §6321 is a matter of federal law. United States v. National Bank of Commerce [85-2 USTC ¶9482], 472 U.S. 713, 727. This Court looks initially to state law to determine what rights the taxpayer has in the property the Government seeks to reach, then to federal law to determine whether the taxpayer's state-delineated rights qualify as "property" or "rights to property" within the compass of the federal tax lien legislation. Cf. Morgan v. Commissioner [40-1 USTC ¶9210], 309 U.S. 78, 80. Just as exempt status under state law does not bind the federal collector, United States v. Mitchell [71-1 USTC ¶9451], 403 U.S. 190, 204, so federal tax law is not struck blind by a disclaimer, United States v. Irvine [94-1 USTC ¶60,163], 511 U.S. 224, 240, Pp. 7-9.

(c) The Eighth Circuit, with fidelity to the relevant Code provisions and this Court's case law, determined first what rights state law accorded Drye in his mother's estate. The Court of Appeals observed that under Arkansas law Drye had, at his mother's death, a valuable, transferable, legally protected right to the property at issue, and noted, for example, that a prospective heir may effectively assign his expectancy in an estate under Arkansas law, and the assignment will be enforced when the expectancy ripens into a present estate. Drye emphasizes his undoubted right under Arkansas law to disclaim the inheritance, a right that is indeed personal and not marketable. But Arkansas law primarily gave him a right of considerable value--the right either to inherit or to channel the inheritance to a close family member (the next lineal descendant). That right simply cannot be written off as a mere personal right to accept or reject a gift. In pressing the analogy to a rejected gift, Drye overlooks this crucial distinction. A donee who declines an inter vivos gift restores the status quo ante, leaving the donor to do with the gift what she will. The disclaiming heir or devisee, in contrast, does not restore the status quo, for the decedent cannot be revived. Thus the heir inevitably exercises dominion over the property. He determines who will receive the property--himself if he does not disclaim, a known other if he does. This power to channel the estate's assets warrants the conclusion that Drye held "property" or a "righ[t] to property" subject to the Government's liens under §6321. Pp. 9-11.

[98-2 USTC ¶50,651], 152 F. 3d 892, affirmed.

Justice GINSBURG

delivered the opinion of the Court.

This case concerns the respective provinces of state and federal law in determining what is property for purposes of federal tax lien legislation. At the time of his mother's death, petitioner Rohn F. Drye, Jr., was insolvent and owed the Federal Government some $325,000 on unpaid tax assessments for which notices of federal tax liens had been filed. His mother died intestate, leaving an estate with a total value of approximately $233,000 to which he was sole heir. After the passage of several months, Drye disclaimed his interest in his mother's estate, which then passed by operation of state law to his daughter. This case presents the question whether Drye's interest as heir to his mother's estate constituted "property" or a "righ[t] to property" to which the federal tax liens attached under 26 U. S. C. §6321, despite Drye's exercise of the prerogative state law accorded him to disclaim the interest retroactively.

We hold that the disclaimer did not defeat the federal tax liens. The Internal Revenue Code's prescriptions are most sensibly read to look to state law for delineation of the taxpayer's rights or interests, but to leave to federal law the determination whether those rights or interests constitute "property" or "rights to property" within the meaning of §6321. "[O]nce it has been determined that state law creates sufficient interests in the [taxpayer] to satisfy the requirements of [the federal tax lien provision], state law is inoperative to prevent the attachment of liens created by federal statutes in favor of the United States." United States v. Bess [58-2 USTC ¶9595], 357 U.S. 51, 56-57 (1958).

I.

A.

The relevant facts are not in dispute. On August 3, 1994 , Irma Deliah Drye died intestate, leaving an estate worth approximately $233,000, of which $158,000 was personalty and $75,000 was realty located in Pulaski County , Arkansas . Petitioner Rohn F. Drye, Jr., her son, was sole heir to the estate under Arkansas law. See Ark. Code Ann. §28-9-214 (1987) (intestate interest passes "[f]irst, to the children of the intestate"). On the date of his mother's death, Drye was insolvent and owed the Government approximately $325,000, representing assessments for tax deficiencies in years 1988, 1989, and 1990. The Internal Revenue Service (IRS or Service) had made assessments against Drye in November 1990 and May 1991 and had valid tax liens against all of Drye's "property and rights to property" pursuant to 26 U. S. C. §6321.

Drye petitioned the Pulaski County Probate Court for appointment as admin istrator of his mother's estate and was so appointed on August 17, 1994 . Almost six months later, on February 4, 1995 , Drye filed in the Probate Court and land records of Pulaski County a written disclaimer of all interests in his mother's estate. Two days later, Drye resigned as admin istrator of the estate.

Under Arkansas law, an heir may disavow his inheritance by filing a written disclaimer no later than nine months after the death of the decedent. Ark. Code Ann. §§28-2-101, 28-2-107 (1987). The disclaimer creates the legal fiction that the disclaimant predeceased the decedent; consequently, the disclaimant's share of the estate passes to the person next in line to receive that share. The disavowing heir's creditors, Arkansas law provides, may not reach property thus disclaimed. §28-2-108. In the case at hand, Drye's disclaimer caused the estate to pass to his daughter, Theresa Drye, who succeeded her father as admin istrator and promptly established the Drye Family 1995 Trust (Trust).

On March 10, 1995 , the Probate Court declared valid Drye's disclaimer of all interest in his mother's estate and accordingly ordered final distribution of the estate to Theresa Drye. Theresa Drye then used the estate's proceeds to fund the Trust, of which she and, during their lifetimes, her parents are the beneficiaries. Under the Trust's terms, distributions are at the discretion of the trustee, Drye's counsel Daniel M. Traylor, and may be made only for the health, maintenance, and support of the beneficiaries. The Trust is spendthrift, and under state law, its assets are therefore shielded from creditors seeking to satisfy the debts of the Trust's beneficiaries.

Also in 1995, the IRS and Drye began negotiations regarding Drye's tax liabilities. During the course of the negotiations, Drye revealed to the Service his beneficial interest in the Trust. Thereafter, on April 11, 1996 , the IRS filed with the Pulaski County Circuit Clerk and Recorder a notice of federal tax lien against the Trust as Drye's nominee. The Service also served a notice of levy on accounts held in the Trust's name by an investment bank and notified the Trust of the levy.

B.

On May 1, 1996, invoking 26 U. S. C. §7426(a)(1), the Trust filed a wrongful levy action against the United States in the United States District Court for the Eastern District of Arkansas. The Government counterclaimed against the Trust, the trustee, and the trust beneficiaries, seeking to reduce to judgment the tax assessments against Drye, confirm its right to seize the Trust's assets in collection of those debts, foreclose on its liens, and sell the Trust property. On cross-motions for summary judgment, the District Court ruled in the Government's favor.

The United States Court of Appeals for the Eighth Circuit affirmed the District Court's judgment. Drye Family 1995 Trust v. United States [98-2 USTC ¶50,651], 152 F. 3d 892 (1998). The Court of Appeals understood our precedents to convey that "state law determines whether a given set of circumstances creates a right or interest; federal law then dictates whether that right or interest constitutes 'property' or the 'right to property' under §6321." Id. , at 898.

We granted certiorari, 526 U.S.-- (1999), to resolve a conflict between the Eighth Circuit's holding and decisions of the Fifth and Ninth Circuits. ¹ We now affirm.

II.

Under the relevant provisions of the Internal Revenue Code, to satisfy a tax deficiency, the Government may impose a lien on any "property" or "rights to property" belonging to the taxpayer. Section 6321 provides: "If any person liable to pay any tax neglects or refuses to pay the same after demand, the amount . . . shall be a lien in favor of the United States upon all property and rights to property, whether real or personal, belonging to such person." 26 U. S. C. §6321. A complementary provision, §6331(a), states:

"If any person liable to pay any tax neglects or refuses to pay the same within 10 days after notice and demand, it shall be lawful for the Secretary to collect such tax . . . by levy upon all property and rights to property (except such property as is exempt under section 6334) belonging to such person or on which there is a lien provided in this chapter for the payment of such tax." ²

The language in §§6321 and 6331(a), this Court has observed, "is broad and reveals on its face that Congress meant to reach every interest in property that a taxpayer might have." United States v. National Bank of Commerce [85-2 USTC ¶9482], 472 U.S. 713, 719-720 (1985) (citing 4 B. Bittker, Federal Taxation of Income, Estates and Gifts ¶111.5.4, p. 111-100 (1981)); see also Glass City Bank v. United States [45-2 USTC ¶9449], 326 U.S. 265, 267 (1945) ("Stronger language could hardly have been selected to reveal a purpose to assure the collection of taxes."). When Congress so broadly uses the term "property," we recognize, as we did in the context of the gift tax, that the Legislature aims to reach " 'every species of right or interest protected by law and having an exchangeable value.' " Jewett v. Commissioner [82-1 USTC ¶13,453], 455 U.S. 305, 309 (1982) (quoting S. Rep. No. 665, 72d Cong., 1st Sess., 39 (1932); H. R. Rep. No. 708, 72d Cong., 1st Sess., 27 (1932)).

Section 6334(a) of the Code is corroborative. That provision lists property exempt from levy. The list includes 13 categories of items; among the enumerated exemptions are certain items necessary to clothe and care for one's family, unemployment compensation, and workers' compensation benefits. §§6334(a)(1), (2), (4), (7). The enumeration contained in §6334(a), Congress directed, is exclusive: "Notwithstanding any other law of the United States . . ., no property or rights to property shall be exempt from levy other than the property specifically made exempt by subsection (a)." §6334(c). Inheritances or devises disclaimed under state law are not included in §6334(a)'s catalog of property exempt from levy. See Bess [58-2 USTC ¶9595], 357 U.S., at 57 ("The fact that . . . Congress provided specific exemptions from distraint is evidence that Congress did not intend to recognize further exemptions which would prevent attachment of [federal tax] liens[.]"); United States v. Mitchell [71-1 USTC ¶9451], 403 U.S. 190, 205 (1971) ("Th[e] language [of §6334] is specific and it is clear and there is no room in it for automatic exemption of property that happens to be exempt from state levy under state law."). The absence of any recognition of disclaimers in §§6321, 6322, 6331(a), and 6334(a) and (c), the relevant tax collection provisions, contrasts with §2518(a) of the Code, which renders qualifying state-law disclaimers "with respect to any interest in property" effective for federal wealth-transfer tax purposes and for those purposes only. ³

Drye nevertheless refers to cases indicating that state law is the proper guide to the critical determination whether his interest in his mother's estate constituted "property" or "rights to property" under §6321. His position draws support from two recent appellate opinions: Leggett v. United States [97-2 USTC ¶50,635; 97-2 USTC ¶60,286], 120 F. 3d 592, 597 (CA5 1997) ("Section 6321 adopts the state's definition of property interest."); and Mapes v. United States, 15 F. 3d 138, 140 (CA9 1994) ("For the answer to th[e] question [whether taxpayer had the requisite interest in property], we must look to state law, not federal law."). Although our decisions in point have not been phrased so meticulously as to preclude Drye's argument, ⁴ we are satisfied that the Code and interpretive case law place under federal, not state, control the ultimate issue whether a taxpayer has a beneficial interest in any property subject to levy for unpaid federal taxes.

III.

As restated in National Bank of Commerce: "The question whether a state-law right constitutes 'property' or 'rights to property' is a matter of federal law." [85-2 USTC ¶9482], 472 U.S. , at 727. We look initially to state law to determine what rights the taxpayer has in the property the Government seeks to reach, then to federal law to determine whether the taxpayer's state-delineated rights qualify as "property" or "rights to property" within the compass of the federal tax lien legislation. Cf. Morgan v. Commissioner [40-1 USTC ¶9210], 309 U.S. 78, 80 (1940) ("State law creates legal interests and rights. The federal revenue acts designate what interests or rights, so created, shall be taxed.").

In line with this division of competence, we held that a taxpayer's right under state law to withdraw the whole of the proceeds from a joint bank account constitutes "property" or the "righ[t] to property" subject to levy for unpaid federal taxes, although state law would not allow ordinary creditors similarly to deplete the account. National Bank of Commerce [85-2 USTC ¶9482], 472 U.S. , at 723-727. And we earlier held that a taxpayer's right under a life insurance policy to compel his insurer to pay him the cash surrender value qualifies as "property" or a "righ[t] to property" subject to attachment for unpaid federal taxes, although state law shielded the cash surrender value from creditors' liens. Bess [58-2 USTC ¶9595], 357 U.S. , at 56-57. ⁵ By contrast, we also concluded, again as a matter of federal law, that no federal tax lien could attach to policy proceeds unavailable to the insured in his lifetime. Id. , at 55-56 ("It would be anomalous to view as 'property' subject to lien proceeds never within the insured's reach to enjoy."). ⁶

Just as "exempt status under state law does not bind the federal collector," Mitchell [71-1 USTC ¶9451], 403 U.S. , at 204, so federal tax law "is not struck blind by a disclaimer," United States v. Irvine [94-1 USTC ¶60,163], 511 U.S. 224, 240 (1994). Thus, in Mitchell, the Court held that, although a wife's renunciation of a marital interest was treated as retroactive under state law, that state-law disclaimer did not determine the wife's liability for federal tax on her share of the community income realized before the renunciation. See [71-1 USTC ¶9451], 403 U.S. , at 204 (right to renounce does not indicate that taxpayer never had a right to property).

IV.

The Eighth Circuit, with fidelity to the relevant Code provisions and our case law, determined first what rights state law accorded Drye in his mother's estate. It is beyond debate, the Court of Appeals observed, that under Arkansas law Drye had, at his mother's death, a valuable, transferable, legally protected right to the property at issue. See [98-2 USTC ¶50,651], 152 F. 3d, at 895 (although Code does not define "property" or "rights to property," appellate courts read those terms to encompass "state-law rights or interests that have pecuniary value and are transferable"). The court noted, for example, that a prospective heir may effectively assign his expectancy in an estate under Arkansas law, and the assignment will be enforced when the expectancy ripens into a present estate. See id., at 895-896 (citing several Arkansas Supreme Court decisions, including: Clark v. Rutherford, 227 Ark. 270, 270-271, 298 S. W. 2d 327, 330 (1957); Bradley Lumber Co. of Ark. v. Burbridge, 213 Ark. 165, 172, 210 S. W. 2d 284, 288 (1948); Leggett v. Martin, 203 Ark. 88, 94, 156 S. W. 2d 71, 74-75 (1941)). ⁷

Drye emphasizes his undoubted right under Arkansas law to disclaim the inheritance, see Ark. Code Ann. §28-2-101 (1987), a right that is indeed personal and not marketable. See Brief for Petitioners 13 (right to disclaim is not transferable and has no pecuniary value). But Arkansas law primarily gave Drye a right of considerable value--the right either to inherit or to channel the inheritance to a close family member (the next lineal descendant). That right simply cannot be written off as a mere "personal right . . . to accept or reject [a] gift." Brief for Petitioners 13.

In pressing the analogy to a rejected gift, Drye overlooks this crucial distinction. A donee who declines an inter vivos gift generally restores the status quo ante, leaving the donor to do with the gift what she will. The disclaiming heir or devisee, in contrast, does not restore the status quo, for the decedent cannot be revived. Thus the heir inevitably exercises dominion over the property. He determines who will receive the property--himself if he does not disclaim, a known other if he does. See Hirsch, The Problem of the Insolvent Heir, 74 Cornell L. Rev. 587, 607-608 (1989). This power to channel the estate's assets warrants the conclusion that Drye held "property" or a "righ[t] to property" subject to the Government's liens.

***

In sum, in determining whether a federal taxpayer's state-law rights constitute "property" or "rights to property," "[t]he important consideration is the breadth of the control the [taxpayer] could exercise over the property." Morgan [40-1 USTC ¶9210], 309 U.S. , at 83. Drye had the unqualified right to receive the entire value of his mother's estate (less admin istrative expenses), see National Bank of Commerce [85-2 USTC ¶9482], 472 U.S. , at 725 (confirming that unqualified "right to receive property is itself a property right" subject to the tax collector's levy), or to channel that value to his daughter. The control rein he held under state law, we hold, rendered the inheritance "property" or "rights to property" belonging to him within the meaning of §6321, and hence subject to the federal tax liens that sparked this controversy.

For the reasons stated, the judgment of the Court of Appeals for the Eighth Circuit is

Affirmed.

¹ In the view of those courts, state law holds sway. Under their approach, in a State adhering to an acceptance-rejection theory, under which a property interest vests only when the beneficiary accepts the inheritance or devise, the disclaiming taxpayer prevails and the federal liens do not attach. If, instead, the State holds to a transfer theory, under which the property is deemed to vest in the beneficiary immediately upon the death of the testator or intestate, the taxpayer loses and the federal lien runs with the property. See Leggett v. United States [97-2 USTC ¶50,635; 97-2 USTC ¶60,286], 120 F. 3d 592, 594 (CA5 1997); Mapes v. United States, 15 F. 3d 138, 140 (CA9 1994); accord, United States v. Davidson [99-2 USTC ¶50,696], 55 F. Supp. 2d 1152, 1155 ( Colo. 1999). Drye maintains that Arkansas adheres to the acceptance-rejection theory.

² The Code further provides:

"Unless another date is specifically fixed by law, the lien imposed by section 6321 shall arise at the time the assessment is made and shall continue until the liability for the amount so assessed (or a judgment against the taxpayer arising out of such liability) is satisfied or becomes unenforceable by reason of lapse of time." 26 U. S. C. §6322.

³ See Pennell, Recent Wealth Transfer Tax Developments, in Sophisticated Estate Planning Techniques 69, 117-118 (ALI-ABA Continuing Legal Ed. 1997) ("The fact that a qualified disclaimer by an estate beneficiary is deemed to relate back to the decedent's death for state property law or federal gift tax purposes is not sufficient to preclude a federal tax lien for the disclaimant's delinquent taxes from attaching to the disclaimed property as of the moment of the decedent's death. . . . [T]he qualified disclaimer provision in §2518 only applies for purposes of Subtitle B and the lien provisions are in Subtitle F.").

⁴ See, e.g., United States v. National Bank of Commerce [85-2 USTC ¶9482], 472 U.S. 713, 722 (1985) ("[T]he federal statute 'creates no property rights but merely attaches consequences, federally defined, to rights created under state law.' ") (quoting United States v. Bess [58-2 USTC ¶9595], 357 U.S. 51, 55 (1958)).

⁵ Accord, Bank One Ohio Trust Co. v. United States [96-1 USTC ¶50,188], 80 F. 3d 173, 176 (CA6 1996) ("Federal law did not create [the taxpayer's] equitable income interest [in a spendthrift trust], but federal law must be applied in determining whether the interest constitutes 'property' for purposes of §6321."); 21 West Lancaster Corp. v. Main Line Restaurant, Inc. [86-2 USTC ¶9516], 790 F. 2d 354, 357-358 (CA3 1986) (although a liquor license did not constitute "property" and could not be reached by creditors under state law, it was nevertheless "property" subject to federal tax lien); W. Plumb, Federal Tax Liens 27 (3d ed. 1972) ("[I]t is not material that the economic benefit to which the [taxpayer's local law property] right pertains is not characterized as 'property' by local law.").

⁶ Compatibly, in Aquilino v. United States [60-2 USTC ¶9538], 363 U.S. 509 (1960), we held that courts should look first to state law to determine " 'the nature of the legal interest' " a taxpayer has in the property the Government seeks to reach under its tax lien. Id. , at 513 (quoting Morgan v. Commissioner [40-1 USTC ¶9210], 309 U.S. 78, 82 (1940)). We then reaffirmed that federal law determines whether the taxpayer's interests are sufficient to constitute "property" or "rights to property" subject to the Government's lien. Id. , at 513-514. We remanded in Aquilino for a determination whether the contractor-taxpayer held any beneficial interest, as opposed to "bare legal title," in the funds at issue. Id. , at 515-516; see also Note, Property Subject to the Federal Tax Lien, 77 Harv. L. Rev. 1485, 1491 (1964) ("Aquilino supports the view that the Court has chosen to apply a federal test of classification, for the contractor concededly had legal title to the funds and yet in remanding the Court indicated that this state-created incident of ownership was not a sufficient 'right to property' in the contract proceeds to allow the tax lien to attach. In this sense Aquilino follows Bess in requiring that the taxpayer must have a beneficial interest in any property subject to the lien." (footnote omitted)).

⁷ In recognizing that state-law rights that have pecuniary value and are transferable fall within §6321, we do not mean to suggest that transferability is essential to the existence of "property" or "rights to property" under that section. For example, although we do not here decide the matter, we note that an interest in a spendthrift trust has been held to constitute " 'property' for purposes of §6321" even though the beneficiary may not transfer that interest to third parties. See Bank One [96-1 USTC ¶50,188], 80 F. 3d, at 176. Nor do we mean to suggest that an expectancy that has pecuniary value and is transferable under state law would fall within §6321 prior to the time it ripens into a present estate.