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No. C99-148 MJM, April 16, 2001



No. C99-148 MJM, April 16, 2001




No. C99-148 MJM

April 16, 2001


In the above-entitled action, the plaintiffs, as executors of the Estate of Edward M. Walshire, seek a refund of estate taxes in the amount of $64,426.02. At issue is whether the decedent made a qualified disclaimer of certain property ("the Property") left to him by his brother, W. John Walshire (John Walshire). The plaintiffs did not include the Property in the decedent's estate tax return on the grounds that the Property was properly disclaimed by the decedent and thus not includable. The Internal Revenue Service (IRS) disagreed and issued a Notice of Deficiency in the amount of $64,426.02. The plaintiffs timely paid the additional tax and brought this suit seeking a refund.

The parties have filed cross-motions for summary judgment. The defendant asks the court to find as a matter of law that the decedent's disclaimer of certain property interests was not a "qualified disclaimer" under 26 U.S.C. ╖ 2518 and that, accordingly, the decedent is not entitled to an estate tax refund. The plaintiff seeks a ruling that the remainder interest of the Property was properly disclaimed for purposes of ╖ 2518 exclusion so that a refund is warranted. (1)


1. All references in this opinion to statutory provisions refer to the Internal Revenue Code, volume 26 of the United States Code.


For reasons to be discussed herein, the defendant's motion for summary judgment is granted and the plaintiffs' motion is denied.


The standard for granting summary judgment is well-established. A motion for summary judgment may be granted only if, after examining all of the evidence in the light most favorable to the nonmoving party, the court finds that no genuine issues of material fact exist and that the moving party is entitled to judgment as a matter of law. See Fed. R. Civ. P. 56(c); Montgomery v. John Deere & Co., 169 F.3d 556, 559 (1999); Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986). A fact is material if it might affect the outcome of the suit under the governing substantive law. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986).

The party moving for summary judgment bears the "initial responsibility of informing the district court of the basis for its motion and identifying those portions of the record which show lack of genuine issue." Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). Once the moving party has carried its burden, the opponent must go beyond the pleadings and designate specific facts-by such methods as affidavits, depositions, answers to interrogatories, and admissions on file-that show that there is a genuine issue for trial. See Fed. R. Civ. P. 56(e); Celotex, 477 U.S. at 324. The evidence of the nonmoving party is to be considered as true, and justifiable inferences arising from the evidence are to be drawn in his or her favor. See Anderson, 477 U.S. at 255. If the evidence of the nonmoving party is "merely colorable," or is "not significantly probative," summary judgment may be granted. Id. at 249-50. Thus, the nonmoving party does not have to provide direct proof that genuine issues of fact exist for trial, but the facts and circumstances that the nonmoving party relies upon must "attain the dignity of substantial evidence and must not be such as merely to create a suspicion." Metge v. Baehler, 762 F.2d 621, 625 (8th Cir.), cent. denied, 474 U.S. 1057 (1985). In essence, the evidence must be "such that a reasonable jury could find a verdict for the nonmoving party." Anderson, 477 U.S. at 248.

Where the litigants concurrently pursue summary judgment, each summary judgment motion must be evaluated independently to determine whether there exists a genuine dispute of material fact and whether the movant is entitled to judgment as a matter of law. See, e.g., Wermager v. Cormorant Township Bd., 716 F.2d 1211, 1214 (8th Cir. 1983) ("[T]he filing of cross motions for summary judgment does not necessarily indicate that there is no dispute as to a material fact, or have the effect of submitting the cause to a plenary decision on the merits."); A. Brod, Inc. v. SK&I Co., L.L.C., 998 F. Supp. 314, 320 (S.D.N.Y. 1998) (when faced with cross-motions, court must consider each motion independently of other, must in each instance view facts and draw all reasonable inferences in favor of nonmoving party, and is not required to grant summary judgment for either side); see generally, I 1 James Wm. Moore et al., Moore's Federal Practice ╤ 56.10[6] (3d ed. 1997). Thus, a cross-motion for summary judgment operates exactly like a single summary judgment motion.


1. Undisputed facts relating to the Property

The decedent's brother, John Walshire, died testate on October 20, 1980. Pursuant to John Walshire's Last Will and Testament at Item XVII, the decedent received 114 of John Walshire's residuary estate ("the Property"). (Complaint, T 7; Def.'s exh. 1, John Walshire's Last Will and Testament). The will further provided that if the decedent had predeceased John Walshire, the decedent's share of the Property should pass to the decedent's heirs who survive him, to each heir an equal share. (Id.). The decedent's heirs are his three sons, Everett, Lewis, and Thomas, and one daughter, Louise Poduska. (Pl.'s Answers to Interrogatories, # 1, attached as Def.'s exh. 2).

On July 16, 1981, the decedent executed and delivered a disclaimer of his remainder interest in the Property but reserved to himself all "use and income from said property" for life. (Complaint, ╤ 8; Disclaimer, attached as Def.'s exh. 3).

John Walshire's estate distributed the Property in the form of eight payments. (Pl.'s Answers to Interrogatories, # 2). Four of these payments were made on November 9, 1982. ( Id .). These four payments were in the form of checks, each for $15,000.00, made out jointly to the decedent and each of his four children. (Id .). Then, upon the final distribution of John Walshire's estate, four checks, each for $31,898.91, were made out jointly to the decedent and each of his four children. (Id.). These payments were converted into eight certificates of deposit. (Complaint, ╤ 8).

The decedent received income from the Property during his life. (Claim for Refund, attached to Complaint).

2. Procedural history

Edward M. Walshire ("the decedent") died December 27, 1995. The plaintiffs, as executors of the decedent's estate, filed a timely estate tax return with the IRS and paid estate taxes in accordance with the return. The decedent's estate tax return did not include the Property as part of the gross estate. (Estate Tax Return, Schedule C, attached as Def.'s exh. 5). The IRS determined that the decedent failed to properly disclaim his interest in the Property so that it was includable in the decedent's estate and subject to tax. On or about December 2, 1998, the defendant through a Notice of Deficiency, assessed against the plaintiffs additional federal estate taxes of $64,426.02. The plaintiffs paid the additional tax and filed this suit seeking a refund of the $64,426.02, plus interest.


Resolution of this case turns on the legal question of whether the decedent's disclaimer of the remainder portion of the Property was a qualified disclaimer under 26 U.S.C. ╖ 2518. If the decedent made a qualified disclaimer under that provision the Property would not be included in the estate and the estate would be entitled to a refund. Conversely, if the decedent's disclaimer is not a qualified disclaimer, the estate is not entitled to a refund.

Section 2518(b) of the Code provides the definition of a "qualified disclaimer:"

[T]he term "qualified disclaimer" means an irrevocable and unqualified refusal by a person to accept an interest in property but only if -

═════ (1) such refusal is in writing,

(2) such writing is received by the transferor of the interest . . . not later than the date which is 9 months after . . . the day on which the transfer creating the interest in such person is made . . . ,

(3) such person has not accepted the interest or any of its benefits, and

(4) as a result of such refusal, the interest passes without any direction on the part of the person making the disclaimer

Section 2518(c)(1) further provides:

A disclaimer with respect to an undivided portion of an interest which meets the requirements of the preceding sentence [╖ 2518(b)] shall be treated as a qualified disclaimer of such portion of the interest.

Thus, under ╖ 2518(c), a person can disclaim an undivided portion of an interest in property, which the decedent attempted to do here by disclaiming the remainder interest while retaining the use and income from the Property for his life. The defendant asserts, however, that as a matter of law this type of horizontal division of the Property -- between a life and remainder interest -- does not satisfy the undivided portion requirement of ╖ 2518(c) and thus is not a qualified disclaimer under the Code.

A. The decedent's disclaimer was not a qualified disclaimer under the applicable Treasury regulations.

The Treasury regulations unequivocally support the defendant's position. Treasury Regulation ╖ 25.2518-3(b) provides that a disclaimer of a remainder interest in property while retaining a life estate is not a qualified disclaimer of an undivided portion:

Disclaimer of undivided portion. A disclaimer of an undivided portion of a separate interest in property which meets the other requirements of a qualified disclaimer under section 2518(b) and the corresponding regulations is a qualified disclaimer. An undivided portion of a disclaimant's separate interest in property must consist of a fraction or percentage of each and every substantial interest or right owned by the disclaimant in such property and in other property into which such property is converted. A disclaimer of some specific rights while retaining other rights with respect to an interest in the property is not a qualified disclaimer of an undivided portion of the disclaimant's interest in property. Thus, for example, a disclaimer made by the devisee of a fee simple interest in Blackacre is not a qualified disclaimer if the disclaimant disclaims a remainder interest in Blackacre but retains a life estate.

Treas. Reg. ╖ 25.2518-3(b) (emphasis added). See also Treas. Reg. ╖ 25.2518-3 (d), Example 2 (explaining that where devisee disclaimed the income interest in the shares of Z corporation stock while retaining the remainder interest in such shares, the devisee's disclaimer is not a qualified disclaimer).

The plaintiffs tacitly concede that the regulations support the additional tax assessed in this instance, but argue that the Treasury regulations under ╖ 2518 are unreasonable and inconsistent with the language of the statute. To that end, the plaintiffs assert that the meaning of "undivided portion" in ╖ 2518(c) is clear and unambiguous, that the decedent's horizontal division of the Property between a life and remainder interest falls within that meaning, and that the Treasury regulations promulgated under ╖ 25.2518 are invalid as inconsistent with the plain language of ╖ 2518(c). The plaintiffs further assert that even if the language in ╖ 2518(c) is not clear and unambiguous, the IRS' interpretation as supported by the Treasury regulations is still unreasonable.

The Treasury regulations under ╖ 2518 were promulgated pursuant to the Commissioner's general authority to prescribe "all needful rules and regulations" for enforcement of the Code. 26 U.S.C. ╖ 7805(a). Review of the plaintiffs' substantive challenge to a regulation is governed by the Supreme Court's decision in Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984). Chevron calls for a two-step inquiry. See id. at 842-45. First, the court is to look to the language of the statutory provisions at issue. If the plain meaning of the statute is at odds with the regulation the analysis is complete and the regulation is invalid. See Atlantic Mutual Ins. Co. v. Commissioner of Internal Revenue, 523 U.S. 382, 387 (1998), quoting Chevron ("If the intent of Congress is clear, that is the end of the matter; for the court, as well as the agency, must give effect to the unambiguously expressed intent of Congress."). If, however, "the statute is silent or ambiguous with respect to the specific issue, the question for the court is whether the agency's answer is based on a permissible construction of the statute." Chevron, 467 U.S. at 843. If the Commissioner's interpretation of ╖ 2518(c), as articulated by Treasury Regulation ╖ 25.2518, is reasonable, then deference is given to the regulation. See Chevron, 467 U.S. at 844 (explaining that "a court may not substitute its own construction of a statutory provision for a reasonable interpretation made by the administrator of an agency"). Where a statutory term is ambiguous, the task before the court "is to decide, not whether the Treasury Regulation represents the best interpretation of the statute, but whether it represents a reasonable one." Atlantic Mutual Insurance, 523 U.S. at 389.

B. The Treasury Regulations are not inconsistent with the plain language of the statute.

The court disagrees with plaintiffs' assertion that Treasury Regulation ╖ 25.2518 is inconsistent with the plain language of ╖ 2518(c). More specifically, the court disagrees that the language of ╖ 2518(c)(1) is clear and unambiguous. Nowhere within the statute is "undivided portion" defined, and ╖ 2518(c)'s explicit incorporation of the ╖ 2518(b) requirements further complicates the definitional inquiry. Under ╖ 2518(b)(3), a disclaimer is qualified only if the disclaimant "has not accepted the interest or any of its benefits." Thus, any undivided portion disclaimed under ╖ 2518(c) must also strictly comply with this "no benefits" requirement and there is a strong argument that the horizontal division proposed by the plaintiffs does not.

In short, the plaintiffs' proposed definition of "undivided portion" assumes that ╖ 2518(c) can be read in isolation. Because it cannot, the meaning of "undivided portion" is far from clear and unambiguous, and the defendant is entitled to summary judgment if Treasury Regulation ╖ 25.2518 is a reasonable interpretation of congressional intent.

C. The Commissioner's interpretation of ╖ 2518(c) as explained and illustrated in Treasury Regulation ╖ 25.2518. is reasonable.

Section 2518 was added to the Code by the Tax Reform Act of 1976, P.L. 94455, to mandate uniform treatment of disclaimers for federal transfer tax purposes. See, e.g., H.R. Rep. No. 1380, 94th Cong. 2d Sess. (1976) (discussing problematic effect of non-uniform state disclaimer laws on federal transfer tax); United States v. Irvine, 511 U.S. 224 (1994) (recognizing that after ╖ 2518, federal law controls disclaimer effect for federal transfer tax purposes); see also P.L. 94-455 (citing relevant legislative history). Neither the statute nor the legislative history provide a specific definition of "undivided portion." The court agrees with the defendant, however, that Treasury Regulation ╖ 25.2518 is a reasonable interpretation of congressional intent and promotes harmony in application of the Code.

In enacting ╖ 2518, Congress made an implicit distinction between disclaimers and "qualified disclaimers." Under the Code, then, not all disclaimers of property interests will result in exclusion of property from a decedent's gross estate. The Commissioner, through Treasury Regulation ╖ 25.2518, recognized this distinction and reasonably applied it to conclude that a horizontal division of a property interest wherein the devisee disclaims only the remainder interest impermissibly conflicts with 26 U.S.C. ╖ 2036. That section provides that a decedent's gross estate includes the value of any interest in property transferred by the decedent if the decedent retains for his life the right to the income from the property. See also Treas. Reg. ╖ 25.2036-1(a). As this court understands the undisputed facts, that is precisely the effect of the decedent's disclaimer in this case. The decedent disclaimed the remainder of the Property but retained for life the right to income from the Property. Thus, the Commissioner's interpretation of ╖ 2518(c), as articulated in Treasury Regulation ╖ 25.2518, is wholly consistent with ╖ 2036 and Congress' explicit intention to include within the decedent's gross estate the total value of any and all property where the decedent retains income from the property and transfers the remainder.


In sum, the court finds that the Commissioner reasonably interpreted 26 U.S.C. ╖ 2518 to preclude application of that provision's "qualified disclaimer" status to the horizontal division of property interests. Having so concluded, it follows that inclusion of the Property within the decedent's gross estate under 26 U.S.C. ╖ 2518 was proper and that the defendant is entitled to summary judgment.


Accordingly, for the reasons discussed herein, it is ordered:

The defendant's motion for summary judgment (doc. no. 10) is GRANTED, and the plaintiffs' parallel motion (doc. no. 13) is DENIED.

Done and so ordered this 16th day of April, 2001.

Michael J. Melloy

United States District Court for the

Northern District of Iowa


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