Source: https://supreme.justia.com/cases/federal/us/528/49/
Timestamp: 2019-04-20 10:30:09
Document Index: 229749924

Matched Legal Cases: ['§ 6321', '§ 6321', '§ 6321', '§ 6322', '§ 6334', '§ 6334', '§ 6334', '§ 6334', '§ 6334', '§ 6321', '§ 6321', '§ 6321', '§ 6321']

Drye v. United States :: 528 U.S. 49 (1999) :: Justia US Supreme Court Center
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Drye v. United States, 528 U.S. 49 (1999)
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 administrator of his mother's estate and was so appointed. Several months after his mother's death, Drye resigned as administrator 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 administrator 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. Mter 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 to reduce to judgment the tax assessments against Drye, confirm its right to seize the Trust's assets in collection
(b) The question whether a state-law right constitutes "property" or "rights to property" under § 6321 is a matter of federal law. United
With him on the brief were Solicitor General Waxman, As-
The relevant facts are not in dispute. On August 3, 1994, Irma Deliah Drye died intestate, leaving an estate worth
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
The United States Court of Appeals for the Eighth Circuit affirmed the District Court's judgment. Drye Family 1995 Trust v. United States, 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.
"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 oflapse of time." 26 U. S. C. § 6322.
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, 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, 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
4 See, e. g., United States v. National Bank of Commerce, 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, 357 U. S. 51, 55 (1958)).
5 Accord, Bank One Ohio Trust Co. v. United States, 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., 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, 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, 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. 363 U. S., 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, 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.
Opinion Announcement - December 07, 1999
528 U.S. 49