Opinion ID: 72001
Heading Depth: 4
Heading Rank: 2

Heading: Drye

Text: Nouveau argues that we should not apply Simpson here, urging that it was superseded by the Supreme Court’s decision in Drye. In that case, Drye was insolvent and owed the Government a large tax debt, for which federal tax liens had attached to all his assets. 528 U.S. at 52. Comparable to Simpson and the instant case, Drye’s mother died intestate in Arkansas, leaving Drye as her sole heir. Id. Drye disclaimed his interest in his mother’s estate, which then, under Arkansas law, passed to his daughter. Id. Drye’s daughter then set up a spendthrift trust,5 naming her parents as beneficiaries. Id. at 53–54. Under Arkansas inheritance law, “[t]he disavowing heir’s creditors . . . may not reach [disclaimed property].” Id. at 53. 4 In addition to the Seventh Circuit in Atchison, and the Ninth Circuit (discussed below), the Tenth Circuit has “held that a disclaimer issued under Colorado law was also not a fraudulent transfer.” Simpson, 36 F.3d at 453 (citing Hoecker v. United Bank of Boulder, 476 F.2d 838, 841 (10th Cir. 1973)). No other circuit court has held to the contrary, though a few bankruptcy courts have held differently. See David A. Lander, Does the Supreme Court Decision in Drye Mean that a Disclaimer of Inheritance is a Fraudulent Conveyance?, 12 NORTON BANKR. L. ADVISER 1, 3 (2002) (collecting cases). 5 That is, “[a] trust that prohibits the beneficiary’s interest from being assigned and also prevents a creditor from attaching that interest . . . .” BLACK’S LAW DICTIONARY 1654 (9th ed. 2009). 8 No. 09-10622 The IRS then sought to foreclose on its liens and to levy against the trust, and the trust brought an action against the Government for wrongful levy. Id. at 54. The district court ruled that the Government had properly levied against the trust because the disclaimed inheritance interest constituted “property” under the Internal Revenue Code (IRC), and the Eighth Circuit affirmed, reasoning 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 [26 U.S.C.] § 6321.”6 Id. The Court granted certiorari to address “whether Drye’s interest as heir to his mother’s estate constituted ‘property’ or a ‘right to property’ to which the federal tax liens attached . . . despite Drye’s exercise of the prerogative state law accorded him to disclaim the interest retroactively.” Id. at 52 (alteration omitted). In answering this question, the Court first considered the nature of “property” under § 6321 and observed that “the language [of § 6321] is broad and reveals on its face that Congress meant to reach every interest in property that a taxpayer might have.” Id. at 56 (internal quotation marks omitted). The Court noted that the IRC provided a list of “exclusive” exemptions to the broad nature of property under § 6321. Id. at 56–57. Searching this list of exemptions, the Court concluded that there was no recognition of “disclaimers” as an exemption. Id. at 57. 6 Section 6321 provides: 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. § 6321. 9 No. 09-10622 The Court then rejected Drye’s argument that it should look to state law to determine whether his interest in his mother’s estate constituted “property” under § 6321, citing previous tax cases in which it had held that “[t]he question whether a state-law right constitutes ‘property’ or ‘rights to property’ is a matter of federal law.” Id. at 58 (internal quotation marks omitted). Instead, the Court agreed with the Eighth Circuit’s interpretation that, at his mother’s death, Drye “had . . . a valuable, transferable, legally protected right to the property at issue” and held that “in determining whether a federal taxpayer’s state-law rights constitute ‘property’ or ‘rights to property,’ ‘the important consideration is the breadth of the control the taxpayer could exercise over the property.’” Id. at 61 (alterations omitted) (quoting Morgan v. Comm’r, 309 U.S. 78, 83 (1940)). Applying this consideration, the Court concluded that because “Drye had the unqualified right to receive the entire value of his mother’s estate . . . , or to channel that value to his daughter[, that control] rendered the inheritance ‘property’ or ‘rights to property’ [under the IRC]” and affirmed the Eighth Circuit’s judgment. Id. at 60.