DOCKET NO.: 98-1101
DECIDED BY: Rehnquist Court (1986-2005)
LOWER COURT: United States Court of Appeals for the Eighth Circuit
CITATION: 528 US 49 (1999)
ARGUED: Nov 08, 1999
DECIDED: Dec 07, 1999
Daniel M. Traylor – Argued the cause for the petitioners
Kent L. Jones – Department of Justice, argued the cause for the respondent
Facts of the case
In 1994, Irma Drye died, leaving a $233,000 estate. The sole heir to the estate under Arkansas law was Rohn Drye, Jr., her son. Drye owed the Federal Government approximately $325,000 in unpaid tax assessments. The Internal Revenue Service (IRS) had valid tax liens against all of Drye’s “property and rights to property” under federal law, 26 USC section 6321. Several months after Drye was appointed the administrator of his mother’s estate, he disclaimed his interest in the estate, which then passed under state law to his daughter. Arkansas law provides that the disavowing heir’s creditors may not reach property thus disclaimed. Drye’s daughter then proceeded to use the estate’s proceeds to establish a family trust (Trust), of which she and her parents are the beneficiaries. Under state law the Trust was shielded from creditors seeking to satisfy the debts of the Trust’s beneficiaries. After Drye revealed his beneficial interest in the Trust to the IRS, the IRS filed a notice of federal tax lien against the Trust. Ultimately, the District Court ruled in favor of the Government and its lien. In affirming, the Court of Appeals interpreted precedent to mean that state law determines whether a given set of circumstances creates a right or interest, but federal law determines whether that right or interest constitutes “property” or “rights to property” under section 6321, thus subjecting it to federal tax liens.
Does an heir’s interest to an estate constitute “property” or “rights to property” such that federal liens are valid against the heir’s interest, even if the heir has disclaimed the interest under state law?
Media for Drye v. United States
Audio Transcription for Opinion Announcement – December 07, 1999 in Drye v. United States
William H. Rehnquist:
The opinion of the Court in No. 98-1101, Drye against United States will be announced by Justice Ginsburg.
Ruth Bader Ginsburg:
This case concerns the respective provinces of State and Federal Law in determining what is property for purposes of federal tax lien legislation.
The tax payer, Mr. Drye was insolvent, and owed the Federal Government some $325,000.00 on unpaid tax assessments for which notices of Federal Tax Liens had been filed.
His mother died intestate leaving an estate worth approximately $233,000.00 to which Drye was sole heir.
Some six months after his mother’s death, Drye disclaimed his entire interest in his mother’s estate.
By operation of Arkansas Law, the estate then passed to Drye’s daughter who set up a Spendthrift Trust under which she and her parents were beneficiaries.
In a contest between Drye and the Internal Revenue Service, the Federal District Court and the Court of Appeals for the Eighth Circuit held for the government.
Those courts concluded that despite the disclaimer, Drye’s interest in his mother’s estate qualified as a right to property, to which the government’s tax lien attached.
We agree that Drye’s disclaimer did not defeat the federal tax liens, and we affirm the Court of Appeals decision.
The Internal Revenue Code’s prescriptions are most sensibly read to look to state law for delineation of the tax payer’s rights or interests, but to leave to federal law the determination whether those rights or interests rank as Property or rights to property within the meaning of the federal tax lien legislation.
Congress used the term ‘Property’ broadly in that legislation, it aimed to reach every legally protected right and property that one can keep or exchange for value.
Drye’s right as sole heir fit that description.
Relying on decisions of the Arkansas Supreme Court, the Court of Appeals concluded that under State Law, Drye had, at his mother’s death, a legally protected right to receive the property at issue, a Right he could transfer to others for money’s worth.
Drye takes a different view; he maintains that on the date of his mother’s death, he held nothing more than a personal non-transferable right to accept or reject a gift.
But Arkansas Law primarily gave Drye a right of considerable value; the unqualified right either to inherit or to channel the inheritance to a close family member, the next lineal descendent.
Thus, a disclaiming heir inevitably exercises dominion over the property, unlike a donee, who by declining a gift restores his status quo ante, leaving the donor what to do with the gift what she will.
Drye’s power to channel the estate’s assets to himself or to his daughter, the control rein he held under state law warrants the conclusion that under federal law he had a right to property, subject to the government’s tax liens.
The decision is unanimous.