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United States Court of Appeals,

Fifth Circuit.

No. 96-41103.

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.

Sept. 4, 1997.

Appeal from the United States District Court for the Southern

District of Texas.

Before POLITZ, Chief Judge, and HIGGINBOTHAM and SMITH, Circuit

Judges.

JERRY E. 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-twentieth1 I n August 1995, the estate sold certain property. In

exchange for the IRS's release of its lien against that property,

the estat e paid the IRS 1/20 of the proceeds, or $2,515.95. The

IRS credited this money against Schuette's debt and rejecte d 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. § 2 410(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.

2 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

pe tition 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 T EX

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. § 37.009 (Vernon 1986) (authorizin g the award of fees and3

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 fail s to pay his taxes, all property rights

that he has or acquires thereafter immediately an d automatically

are subject to a fede ral tax lien, s ee 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.

B ank, 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. S ee United States v.

National Bank of Commerce, 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, 105 S.Ct. at4

2925-26; U

nited States v. Bess, 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...." T E X

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§ 37 (Vernon Supp.1997). This rule prevents any lapse in title,

insures tha t 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, 76 4 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 provi ded. 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 to5

the claims of any creditor of the disclaimant. Unless the

deceden t's will provides otherwise, the property subject to

the disclaimer shall pass as if the person disclaiming

... had

predeceased the decedent....

T EX

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. § 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, s ee

id. § 37A(a), and cannot be mad e if the disclaimant has used the

pr operty, see id. § 37A(g). A disclaimer is distinct from an

assignment, which i s a gift from an assignor to an assignee of

inherited property. See id. § 37B(d).

These provision s are somewhat contradictory. Section 37

states that the int ended 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.

Det ermining 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 re ality and § 37A as a legal fiction.

Under this view, the in tended beneficiaries own the estate's

property at the moment of death. If one of them files a valid

disclaimer, the property is transferr ed to other beneficiaries.

The legislature, cogniz ant 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 § 373 There are man y situations, in addition to Schuette's, in

which a perso n 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.

6 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 t he 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

hei r s to take possession of property they did not want. 3 Second,7

it had unintended tax consequences. A disclaiming beneficiary of

a will was not subject to gift tax liability, see, e.g., Brown v.

Routzahn, 63 F.2d 914, 917 (6th Cir.1933), while a disclaiming heir

was subject to tax liability, s ee, e.g., Hardenbergh v.

Commissioner, 198 F.2d 63, 66 (8th Cir.1952), aff'g 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 force d to take inherited property against his will. S ee U NIF

.

D ISCLAIMER OF T RANSFER BY W ILL

, I NTESTACY OR A PPOINTMENT A CT § 1 comment, 8A

U.L.A. 166, 166-68 (1993). This, of course, is the AcceptanceRejection Theory.

The Texas courts have adopted this view of § 37A: "This

"relation back' doctrine is based on the principle that a bequest

o r 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.' " I d. at 534

(quoting T EX

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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 unless8

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 i s the law in

Texas).

This settles the instant dispute. Under Texas law, Schuette

had the right to accept Leggett's in tended gift by taking

possession of it, by exercising control and dominion over it, or by

taking no action within t he 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

t he Second and Ninth Circuits have come to different conclusions

fro m each other, interpreting New York and Arizona law,

respectively. C ompare United States v. Comparato, 22 F.3d 455, 458

(2d Cir.1994) (holding that a disclaimer was rendered ineffective

by a federal tax lien) w ith 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 are9

reconcilable.

The S econd Circuit, citing I n re Estate of Scrivani, 116

M isc.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, 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 Sc rivani, 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 consid ered available" would have made

Molinelli ineligible for Medicaid benefits. N.Y. S OC

. S ERV

. L AW §

366(5)(a) (McKinney 1992 & Supp.1997). The court, therefore, was

forced to determine whether a renunciation of an inhe ritance

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." S crivani, 116 Misc.2d

at 208, 455 N.Y.S.2d 505. The court, however, then held that the

Molinelli had "an inchoate prope rty 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 C ORNELL L.R EV

. 587,

601-03 (1989) (arguing that Scrivani is internally contradictory).

Therefore, the court reasoned, reno uncing the inheritance would

constitute the transfer, or rather the waste , of an available4 See Scrivani, 116 Misc.2d at 209, 455 N.Y.S.2d 505; s ee also

In re Molloy v. Ban e, 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; s ee also Robert M. Hoffman &

Aaron L. Mitchell, Deceptive Trade Practices and Commercial Torts,

45 S W

. L.J. 1667, 1710 (stating that Texas follows the majo rity

rule); c f. Frances Slocum Bank & Trust Co. v. Estate of Martin,

666 N.E.2d 411, 415 (Ind.Ct.App.1996) (adopting Dyer ).

10 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 ex plained, Texas law follows the AcceptanceRejection 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 M apes 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 m ajority

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.11

The fa ct 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 U nited States v . Irvine, 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. S ee id. at 2 26, 114

S.Ct. at 1475. The Court's interpretation of the gift tax does not

dictate this court's interpretation of § 6321.

S ection 6321 adopts the state's definition of pro perty

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." J ewett v.

Commissioner, 455 U.S. 305, 309, 102 S.Ct. 1082, 1086, 71 L.Ed.2d

170 (1982) (quoting S.R EP

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. 72-665, at 39 (1932); H.R.R E P

. N O

.6 In Irvine, the disclamation occurred 62 years after the

trust 's creation. S ee 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. S ee T EX

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. § 37A(a) (V ernon

Supp.1997). It is worth noting that the disclaimer in C omparato

was filed over seven years after the devisor's death. S ee 22 F.3d

at 456.

12 72-708, at 27 (1932)).

In dictum, the Court recognized the c onundrum 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 transa ction, requiring not only a

donor's intent to give, but also a donee's ac ceptance,

state-law tolerance for delay in disclaiming reflects a less

theoretical concern. An important consequence of treating a

disclaimer as an a b 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, 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

a llowing a late disclaimer, 6 on the other hand, can be explaine d

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 Stat es v. Mitchell, 403 U.S. 190, 191, 91 S.Ct.7 See L A

. C IV .C ODE art. 2410 (1870) ("Both the wife and her heirs

or assigns have the privilege of being able to exonerate themselves

f rom the debts contracted during the marriage, by renouncing the

partnership or community of gains.").

13 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, 91 S.Ct. at 1765-66.

The Court noted that tax liability f ollows ownership and,

therefore, if Mitchell ever had ownership of the income, she was

liable for the tax. See id. at 196-97, 91 S.Ct. at 1767-68. The

Court proceeded as we do today, examining the state law in great

detail. S ee id. at 197-203, 91 S.Ct. at 1768-71. The Court

determined that, under Lo uisiana law, the wife had a property

interest in the community's income from t he moment of inception,

rather than "a mere expectancy." I d. at 199, 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

m ethodology as did the M itchell Court. Like that Court, we have

examined state law to determine whether it creates a property

interest. Unlike the statutory scheme considered in M itchell,

Texas law did not create a property interest for Schuette in

Leggett's estate. Although the IRS correctly argues that M itchell14

"underscored the suprem acy of federal law with respect to the

taxation of state created pro perty interests," M itchell 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. S ee Rodriguez v. INS, 9

F.3d 408, 414 (5th Cir.1993).

REVERSED.