United States v. Irvine

PETITIONER: United States
RESPONDENT: Irvine et al.
LOCATION: Landfill

DOCKET NO.: 92-1546
DECIDED BY: Rehnquist Court (1993-1994)
LOWER COURT: United States Court of Appeals for the Eighth Circuit

CITATION: 511 US 224 (1994)
ARGUED: Dec 06, 1993
DECIDED: Apr 20, 1994

ADVOCATES:
Kent L. Jones - on behalf of the Plaintiff
Phillip H. Martin - on behalf of the Respondents

Facts of the case

Question

Media for United States v. Irvine

Audio Transcription for Oral Argument - December 06, 1993 in United States v. Irvine

William H. Rehnquist:

We'll hear argument first this morning in Number 92-1546, United States v. John Irvine and First Trust National Association.

Mr. Jones.

Kent L. Jones:

Mr. Chief Justice and may it please the Court:

In 1917, Lucius Ordway formed a trust with substantial assets.

Each of his grandchildren, including Sally Ordway Irvine, was given a remainder interest in the trust.

By 1931, when Mrs. Irvine was 21 years old, she was aware of her remainder interest.

In 1966, when her father died, she became entitled to receive and did receive each year a portion of the income from the trust.

In 1979, when the trust terminated, Mrs. Irvine was entitled to receive one-thirteenth of the corpus of the trust, which then exceeded $1/2 billion in value.

Mrs. Irvine at that time was 68 years old and had five adult children.

She determined that she did not need her entire share of this enormous fortune, and filed a written disclaimer of a portion of her interest in the trust.

Under the disclaimer, each of her children received one-sixteenth of her interest in the trust.

Mrs. Irvine retained the remaining eleven sixteenths of her interest for herself.

The Federal gift tax supplements the estate tax by imposing a tax on any direct and indirect transfer of property by gift.

The question presented in this case is whether Mrs. Irvine's 1979 disclaimer of five-sixteenths of her interest in the trust represents a gratuitous transfer of property to which the gift tax applies.

Many of the issues presented in this case have already been resolved by the Court.

Since 1943, in Smith v. Shaughnessy, it has been established that a remainder interest in a trust is a form of property, to which the gift tax applies, and the fact that the remainder interest is subject to defeasance goes only to the value of that interest and not to its character as property.

The only other question posed by the statute is whether the disclaimer of such an interest in property represents a transfer of that property for purposes of the gift tax, and in 1982, in Jewett v. Commissioner, this Court held that it does.

The Court accepted the interpretation of the Commissioner that a disclaimer that is not made within a reasonable time after the taxpayer learns of his interest in the property is an indirect transfer of property to which the gift tax applies.

The Court explained that the passage of time is crucial to the gift tax scheme.

With the passage of time, the taxpayer can decide whether to retain the property for himself or allow it to pass to the next generation.

The analysis of the Court in Jewett obviously applies directly to Mrs. Irvine's long-delayed disclaimer in this case.

The court of appeals concluded, however, that the gift tax does not apply to this 1979 disclaimer solely because the interest that was disclaimed was created in 1917, before the gift tax was enacted.

The Court's analysis ultimately rests upon its acceptance of a legal fiction.

William H. Rehnquist:

What section are we talking about here, Mr. Jones?

Kent L. Jones:

What section of the Internal Revenue Code?

William H. Rehnquist:

Yes, where... that the court of appeals relied on, the fact that it was not created by that particular date.

Kent L. Jones:

The section of the code that is relevant would be section 2511, but I think that the answer to your question is that in the enactment of the Federal gift tax there was a provision that says that this statute will not apply to any transfer prior to the date of enactment, and so it was that retroactive... it was that feature of the statute that the court had in mind.

William H. Rehnquist:

Well, the Eighth Circuit also relied on one section or subsection that talked about something being a taxable transfer, didn't it?

Kent L. Jones:

Well, that was a different portion of the court's rationale that I haven't yet discussed.

William H. Rehnquist:

Okay.