Source: https://www.legalcrystal.com/case/105300/jewett-vs-commissioner
Timestamp: 2017-09-25 06:04:30
Document Index: 257009654

Matched Legal Cases: ['§ 2501', '§ 2501', '§ 25', '§ 2501', '§ 25', '§ 25', '§ 2009', '§ 2518', '§ 2009']

Jewett Vs Commissioner - Citation 105300 - Court Judgment | LegalCrystal
Jewett Vs. Commissioner - Court Judgment
LegalCrystal Citation legalcrystal.com/105300
Case Number 455 U.S. 305
Appellant Jewett
jewett v. commissioner - 455 u.s. 305 (1982) u.s. supreme court jewett v. commissioner, 455 u.s. 305 (1982) jewett v. commissioner, 455 u.s. 305 (1982) no. 80-1614 argued december 1, 1981 decided february 23, 1982 455 u.s. 305 certiorari to the united states court of appeals for the ninth circuit syllabus held: the "transfer" referred to in the treasury regulation excepting from the federal gift tax a refusal to accept ownership of an interest in property transferred by will if such refusal is effective under local law and made "within a reasonable time after knowledge of the existence of the transfer," occurs, as indicated by both the text and history of the regulation, when the interest is created, and not at.....
Jewett v. Commissioner - 455 U.S. 305 (1982)
U.S. Supreme Court Jewett v. Commissioner, 455 U.S. 305 (1982)
Held: The "transfer" referred to in the Treasury Regulation excepting from the federal gift tax a refusal to accept ownership of an interest in property transferred by will if such refusal is effective under local law and made "within a reasonable time after knowledge of the existence of the transfer," occurs, as indicated by both the text and history of the Regulation, when the interest is created, and not at a later time when the interest either vests or becomes possessory. Hence, in this case, where disclaimers of a contingent interest in a testamentary trust, though effective under local law, were not made until 33 years, and thus not "within a reasonable time," after the interest was created, the disclaimers were subject to a gift tax under §§ 2501(a)(1) and 2511(a) of the Internal Revenue Code, as indirect gifts to a successor in interest. Pp. 455 U. S. 309 -919.
STEVENS, J., delivered the opinion of the Court, in which BURGER, C.J., and BRENNAN, WHITE, MARSHALL, and POWELL, JJ., joined. BLACKMUN, J., filed a dissenting opinion, in which REHNQUIST and O'CONNOR, JJ., joined, post, p. 455 U. S. 319 .
Petitioner and his wife filed gift tax returns for the third and fourth quarters of 1972 in which they advised the Commissioner of the disclaimers, but did not treat them as taxable gifts. [ Footnote 1 ] The Commissioner assessed a deficiency of approximately $750,000. He concluded that the disclaimers were indirect transfers of property by gift within the meaning of §§ 2501(a)(1) [ Footnote 2 ] and 2511(a) [ Footnote 3 ] of the Internal Revenue Code, and that they were not excepted from tax under Treas.Reg. § 25.2511-1(c) [ Footnote 4 ] because they were not made "within a
In the Tax Court and in the Court of Appeals, petitioner argued that, at the time the disclaimers were made, he had nothing more than a contingent interest in the trust, and that the "reasonable time" in which a tax-free disclaimer could be made did not begin to run until the interest became vested and possessory upon the death of the last surviving life tenant. [ Footnote 5 ] Although a comparable argument had been accepted
by the Court of Appeals for the Eighth Circuit in Keinath v. Commissioner, 480 F.2d 57 (1973), [ Footnote 6 ] it was rejected by the Tax Court [ Footnote 7 ] and by the Ninth Circuit [ Footnote 8 ] in this case. We granted certiorari to resolve the conflict. 452 U.S. 904.
Section 2501(a)(1) of the Internal Revenue Code imposes a tax "on the transfer of property by gift." Section 2511(a) provides that the tax shall apply "whether the gift is direct or indirect, and whether the property is real or personal, tangible or intangible." As the Senate [ Footnote 9 ] and House [ Footnote 10 ] Reports explain:
In Smith v. Shaughnessy, 318 U. S. 176 , 318 U. S. 180 , the Court noted that
Our expansive reading of the statutory language in Smith unquestionably encompasses an indirect transfer, effected by means of a disclaimer, of a contingent future interest in a trust. [ Footnote 11 ] Congress enacted the gift tax as a "corollary" or "supplement" to the estate tax. [ Footnote 12 ] In Estate of Sanford v. Commissioner, 308 U. S. 39 , 308 U. S. 44 , the Court explained that
Other language, however, indicates that the relevant "transfer" occurs at the time of the testator's death. The word "transfer" is the basic term used in the gift tax provisions to describe any passage of property without consideration that may have tax consequences. See 26 U.S.C. §§ 2501, 2511, quoted in nn. 2 3 supra. [ Footnote 13 ] The Regulation
after knowledge of the existence of the "transfer." [ Footnote 14 ] The word "interest" unquestionably would encompass a contingent remainder even if the word "transfer" arguably would not. Thus, if the initial draft had been adopted without change, petitioner's disclaimers certainly would be subject to tax. Petitioner contends that the drafting change must have been intended to avoid this consequence.
A Memorandum from the Commissioner to the Secretary of the Treasury submitted on October 1, 1958, explained that the change in language was intended to capture "the proper distinction" between two early court decisions that the Regulation had attempted to codify. [ Footnote 15 ] In both of these cases, the
proper distinction between these two court cases"; indeed, in Brown v. Routzahn, the property interest had fully "vested" at the time of the taxpayer's renunciation. [ Footnote 16 ] Thus, to incorporate the proper distinction, the Commissioner changed the "vesting" requirement to a requirement that "the law governing the administration of the decedent's estate" must give a right to "refuse to accept ownership of property transferred from a decedent." Having eliminated the "vested property interest" language from the first part of the Regulation, the Commissioner correspondingly changed the second part to read "within a reasonable time after knowledge of the existence of the transfer," rather than "within a reasonable time after knowledge of the existence of the interest."
these two cases, his interpretation of the Regulation would render half of it superfluous. The Regulation explicitly imposes two requirements: (1) the disclaimer must be effective as a matter of local law; and (2) the disclaimer must be made within a reasonable time. If timeliness were governed solely by local law, the second requirement would be redundant. While it is possible that local law may require a disclaimer to be timely to be effective, such a requirement would not absolve the taxpayer from the separate timeliness requirement imposed by the federal Regulation. Otherwise, the Regulation would be complete with a single requirement that the disclaimer be effective under local law. [ Footnote 17 ]
Petitioner's remaining arguments may be answered quickly. In the Tax Reform Act of 1976, Congress established specific standards for determining whether a disclaimer constitutes a taxable gift; those new standards would support the Commissioner's position in this case if the original transfers had occurred after the effective date of the Act. [ Footnote 18 ] Petitioner argues that the legislative decision not to
apply those standards retroactively is evidence that a different rule was previously effective. It is clear, however, that Congress expressed no opinion on the proper interpretation of the Regulation at issue in this case; it merely established an unambiguous rule that should apply in the future. [ Footnote 19 ]
Petitioner also argues that it is unfair to apply the 1958 Regulation "retroactively" to an interest that had been created previously; petitioner asserts that, by the time the Regulation was adopted, it was already too late -- according to the Commissioner's view -- to disclaim the interest. [ Footnote 20 ] The argument lacks merit. It is based on an assumption that petitioner had a "right" to renounce the interest without tax consequences that was "taken away" by the 1958 Regulation. Petitioner never had such a right. Indeed, petitioner does not argue that taxation of the disclaimers is inconsistent with the statutory provisions imposing a gift tax, which were enacted long before petitioner's interest in the trust was created. The 1958 Regulation was adopted well in advance of the disclaimers in this case; we see no "retroactivity" problem.
The Commissioner's interpretation of the Regulation has been consistent over the years, and is entitled to respect. This canon of construction, which generally applies to the Commissioner's interpretation of the Internal Revenue Code, see Commissioner v. Portland Cement Co. of Utah, 450 U. S. 156 , 450 U. S. 169 , is even more forceful when applied to the Commissioner's interpretation of his own Regulation.
"The gift tax also applies to gifts indirectly made. Thus, all transactions whereby property or property rights or interests are gratuitously passed or conferred upon another, regardless of the means or device employed, constitute gifts subject to tax. See further § 25.2512-8. Where the law governing the administration of the decedent's estate gives a beneficiary, heir, or next-of-kin a right to completely and unqualifiedly refuse to accept ownership of property transferred from a decedent (whether the transfer is effected by the decedent's will or by the law of descent and distribution of intestate property), a refusal to accept ownership does not constitute the making of a gift if the refusal is made within a reasonable time after knowledge of the existence of the transfer. The refusal must be unequivocable [ sic ] and effective under the local law. There can be no refusal of ownership of property after its acceptance. Where the local law does not permit such a refusal, any disposition by the beneficiary, heir, or next-of-kin whereby ownership is transferred gratuitously to another constitutes the making of a gift by the beneficiary, heir, or next-of-kin. In any case where a refusal is purported to relate to only a part of the property, the determination of whether or not there has been a complete and unqualified refusal to accept ownership will depend on all of the facts and circumstances in each particular case, taking into account the recognition and effectiveness of such a purported refusal under the local law. In the absence of facts to the contrary, if a person fails to refuse to accept a transfer to him of ownership of a decedent's property within a reasonable time after learning of the existence of the transfer, he will be presumed to have accepted the property. In illustration, if Blackacre was devised to A under the decedent's will (which also provided that all lapsed legacies and devises shall go to B, the residuary beneficiary), and under local law A could refuse to accept ownership in which case title would be considered as never having passed to A, A's refusal to accept Blackacre within a reasonable time of learning of the devise will not constitute the making of a gift by A to B. However, if a decedent who owned Greenacre died intestate with C and D as his only heirs, and under local law the heir of an intestate cannot, by refusal to accept, prevent himself from becoming an owner of intestate property, any gratuitous disposition by C (by whatever term it is known) whereby he gives up his ownership of a portion of Greenacre and D acquires the whole thereof constitutes the making of a gift by C to D."
As did the Tax Court, we assume that petitioner's interest in the trust is properly characterized as a contingent remainder. Although that interest is arguably a vested remainder subject to divestiture, the distinction is not one of substance for our purposes here. Cf. Helvering v. Hallock, 309 U. S. 106 .
Petitioner does not contend that the creation of an irrevocable trust for the benefit of alternative contingent remaindermen is not a "transfer" when made; if the creation of such a trust is a "transfer" of property within the meaning of the statute, a "transfer" occurred in this case at Margaret Weyerhaeuser Jewett's death. In short, the use of the word "transfer" in Treas.Reg. § 25.2511-1(c) is not indicative of special meaning. To the contrary, Congress has specifically indicated that the term "transfer," at least as used in the statutory provisions defining the gift tax, is used "in the broadest and most comprehensive sense." See supra at 455 U. S. 309 , and nn. 9, 10. It is not surprising that the draftsmen of the Regulation would choose the general term utilized by Congress to describe any passage of property with possible tax consequences.
H.R.Rep. No. 94-1380, pp. 66-67 (1976). Nothing in the legislative history expresses an opinion on the proper interpretation of the previously controlling Regulation. Nor is such an opinion indicated by the mere enactment of the law; Congress may seek to clarify the future without affecting the past. Cf. Knetsch v. United States, 364 U. S. 361 , 364 U. S. 367 -370.
On August 30, 1972, petitioner [ Footnote 2/1 ] executed an instrument disclaiming and renouncing the major portion of any right to receive any remainder of the trust estate upon the death of his mother. On December 14 of that year, petitioner executed a second instrument disclaiming and renouncing the remaining portion of any such right. It is undisputed that these 1972 disclaimers were valid, timely, and effective under the applicable Massachusetts law.
Petitioner George F. Jewett, Jr., and his wife, petitioner Lucille M. Jewett, filed federal gift tax returns for the calendar quarters ended September 30 and December 31, 1972, respectively. Those returns notified respondent Commissioner of the disclaimers, but did not acknowledge them as taxable transfers for federal gift tax purposes. [ Footnote 2/2 ]
As the Court observes, ante at 455 U. S. 311 , the language of the Regulation provides support for the petitioners, as well as for the Commissioner. The Court also acknowledges that the Regulation has language that "implies that the relevant transfer' had not yet occurred when petitioner renounced his interest in the trust." Ibid. The Court, however, opts for the Commissioner's opposing interpretation. I am persuaded otherwise.
testamentary trusts -- or, for that matter, of inter vivos trusts -- legally recognized "interests" of various kinds, possessory and anticipatory, can be created by the trustor. The beneficiary of a contingent remainder or, as the Court seems to suggest here, ante at 455 U. S. 308 , n. 5, of "a vested remainder subject to divestiture," however, may never realize anything by way of actual enjoyment of income or corpus. The contingencies upon which enjoyment depends may never ripen. In particular, the contingent beneficiary may die while the life beneficiary still lives.
3. Until the Ninth Circuit, by its divided vote, decided the present case, the only Court of Appeals authority on the issue was Keinath v. Commissioner, supra. For reasons best known to him, the Commissioner did not seek certiorari in that case, and the decision stood unmolested by any opposing appellate court authority for over seven years. Indeed, it was expressly reaffirmed by the Eighth Circuit sitting en banc in Cottrell v. Commissioner, 628 F.2d 1127 (1980), a case decided just a few weeks before the Ninth Circuit decision. [ Footnote 2/3 ] In the interim, a substantial period as the tax law
"[n]umerous tax practitioners have undoubtedly relied on this [the Keinath ] opinion in advising as to the tax consequences of such acts as are involved in the instant case, and justifiably so."
In Cottrell, the Eighth Circuit, sitting en banc, adhered to its Keinath analysis. It felt the case was "indistinguishable in any material respect from Keinath. " 628 F.2d at 1128. It was undisputed that the disclaimer in question was valid under state law, that it was unequivocal, and that the taxpayer accepted no property before she disclaimed. As in Keinath, if the "reasonable time" period began with the death of the testator, the disclaimer was untimely, but if the critical event was the death of the life beneficiary, the disclaimer "was unquestionably timely, having been executed 16 days, and filed two months, thereafter." 628 F.2d at 1129. There is nothing unfair or improper in allowing the remainderman to wait until the life beneficiary's death and then decide whether to accept the bequest.
What the Eighth Circuit said by way of analysis, and held, in Keinath and Cottrell, when applied to the facts before us, is persuasive, and should control here. The Ninth Circuit majority, without any particular analysis, merely disagreed with the Keinath and Cottrell reasoning and held, in a conclusory statement, that the " transfer,' as used in the regulation, means the transfer to the disclaimant of the property interest disclaimed by him," and that the transfer in question took place in 1939, when Mrs. Jewett died and petitioner received a contingent remainder from her estate. 638 F.2d at 96.
5. The Court notes, ante at 455 U. S. 316 , that by the Tax Reform Act of 1976, Pub.L. 94 455, § 2009(b)(1), 26 U.S.C. § 2518, Congress now has imposed a uniform tax treatment of disclaimers, independent of state law. Section 2518, as so added to the Code, however, was specifically made prospective only, that is, it was made applicable only to transfers creating an interest after 1976. Pub.L. 94-455, § 2009(e)(2), 90 Stat. 1896. It thus has no application to the present case.
The Court declares, ante at 455 U. S. 317 : "Congress expressed no opinion on the proper interpretation of the Regulation at issue in this case," but merely established an unambiguous rule for the future. That conclusion is not at all clear to me. Congress was aware of the Keinath decision. See H.R.Rep. No. 94-1380, p. 66, and n. 4 (1976). The House Committee on Ways and Means observed:
The next pertinent Tax Court decision was that in the present case. [ Footnote 2/4 ] 70 T.C. 430 (1978). There the court, in a reviewed decision, referred to, and relied upon, its own decision in Keinath which had been reversed by the Eighth Circuit. "We think that our decision in Keinath was correct, and that it controls the decision in this case." 70 T.C. at 435.
In Cottrell, three judges dissented because they felt that, in contrast with the factual situation in Keinath, the Cottrell taxpayer had "extensive" and "ultimate" control through a general testamentary power of appointment. They would modify the Keinath approach "where the remainderman essentially controls the events which would cause divestiture of the interest." They agreed, however, with the "general rule as applied to the facts of Keinath, " where an interest is "less than an indefeasibly vested remainder." 628 F.2d at 1132-1133.