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Bob Parrish C PA. P.C.
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Federal
Tax Lien & Inherited Property |
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Telephone — Simply to Help —Helping You
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The
IRS cannot levy on property that a beneficiary stood to inherit where
the beneficiary renounced his interest in the inheritance because the
right to choose whether to inherit was not a property right under state
law. United States v. Davidson, No. 97-Z-1029 (D. Colo. 7/8/99). Upon
the death of his uncle, Sidney Davidson stood to receive property as a
beneficiary of his uncle's estate and trust. However, Davidson renounced
and disclaimed any interest in the property bequeathed to him as
permitted under Colorado law. Nevertheless, the government filed notices
of levy against the estate and trust to satisfy a tax debt owed by
Davidson. The
court held that a federal tax lien could not attach to Davidson's right
to choose whether to inherit property and granted summary judgment for
Davidson. The court identified two general theories under which state
renunciation laws operate. Under the transfer theory, a beneficiary's
property interest vests immediately upon the death of the testator or
grantor, and a renunciation functions as a transfer of interest from the
intended beneficiary to another beneficiary. Thus, even if a person
never enjoys the use of the property, a right to inherit is a right to
property as a matter of state law and subject to a federal tax lien. On
the other hand, if state law follows the acceptance-rejection theory, a
property interest vests only when the beneficiary accepts a gift or
grant. Thus, a person who disclaims or renounces an inheritance never
has a right to property as a matter of state law and, therefore, a
federal tax lien cannot attach. The court determined that Colorado is an
acceptancerejection jurisdiction.
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