[Federal Register Volume 61, Number 163 (Wednesday, August 21, 1996)]
[Proposed Rules]
[Pages 43197-43202]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-21091]
=======================================================================
-----------------------------------------------------------------------
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 20 and 25
[REG-208215-91]
RIN 1545-AR52
Disclaimer of Interests and Powers
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Notice of proposed rulemaking.
-----------------------------------------------------------------------
SUMMARY: This document contains proposed regulations relating to the
treatment of disclaimers for estate and gift tax purposes. The
regulations propose to clarify certain provisions governing the
disclaimer of property interests and powers and, in addition, to
conform the regulations to court decisions holding the current
regulation invalid with respect to the disclaimer of joint property
interests. The proposed regulations will affect persons who disclaim
interests, powers or interests in jointly owned property after the
effective date of these regulations.
DATES: Written comments and requests for a public hearing must be
received by November 19, 1996.
ADDRESSES: Send submissions to: CC:DOM:CORP:R (REG-208215-91), room
5226, Internal Revenue Service, POB 7604, Ben Franklin Station,
Washington, DC 20044. Submissions may be hand delivered between the
hours of 8 a.m. and 5 p.m. to: CC:DOM:CORP:R (REG-208215-91), Courier's
Desk Internal Revenue Service, 1111 Constitution Avenue NW, Washington,
DC. Alternately, taxpayers may submit comments electronically via the
Internet by selecting the ``Tax Regs'' option of the IRS Home Page, or
by submitting comments directly to the IRS Internet site at http://
www.irs.ustreas.gov/prod/tax__ regs/comments.html.
FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations,
Dale Carlton, (202) 622-3090; concerning submissions, Michael
Slaughter, (202) 622-7190 (not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Background
This document proposes to amend the Estate and Gift Tax Regulations
(26 CFR parts 20 and 25) under sections 2041, 2046, 2056, 2511, 2514,
and 2518, relating to the disclaimer of interests in property and
powers over property.
1. Interests and Powers Subject to the Disclaimer Rules
Under section 2518(a), if a person makes a qualified disclaimer,
then for transfer tax purposes, the interest disclaimed is treated as
never having passed to the person disclaiming. Under section
2518(b)(2)(A), in order to have a qualified disclaimer, an interest
must be disclaimed within 9 months of the date of ``the transfer
creating the interest'' in the person disclaiming. A person to whom any
interest passes by reason of the exercise or lapse of a general power
of appointment must disclaim the interest passing within 9 months after
the exercise or lapse.
The current regulations provide that section 2518 applies to the
disclaimer of interests or powers created pursuant to ``taxable
transfers'' made after December 31, 1976. They further provide that the
9-month period within which the disclaimer must be made is to be
determined with reference to the ``taxable transfer'' creating the
interest in the disclaimant. The term ``taxable transfer'' was
incorporated into the regulation based on a statement in the
legislative history underlying the enactment of section 2518. H.R.
Conf. Rep. No. 1515, 94th Cong., 2d Sess. 623 (1976).
Because the reference point under the regulation is the ``taxable
transfer'' creating the interest, the existing regulation could be
viewed as implying that the disclaimer of an interest created in a
transfer that is outside the scope of the estate or gift tax need not
comply with the requirements of section 2518. For example, if the
disclaimed property constitutes an interest in foreign situs property
created pursuant to a transfer by a nonresident alien donor or
decedent, the transfer by the nonresident alien would not be within the
scope of the gift tax or estate tax. However, a disclaimer of such an
interest would have to comply with section 2518; otherwise, there could
be transfer tax consequences to the disclaimant.
Similarly, the regulations do not specifically address the
disclaimer of a property interest passing as a result of the lapse or
release of a general power of appointment created on or before October
21, 1942. Under sections 2041(a)(1) and 2514(a), the lapse or release
of a pre-1942 power is not subject to transfer tax.
The scope of the term ``taxable transfer'', as used in
Sec. 25.2511-1(c)(2), a related provision governing the disclaimer of
interests created in taxable transfers made prior to January 1, 1977,
was considered in the Eighth Circuit
[[Page 43198]]
decision in United States v. Irvine, 981 F.2d 991 (8th Cir. 1992),
rev'd, 114 S.Ct 1473 (1994), and in Ordway v. United States, 908 F.2d
890 (11th Cir. 1991). In these cases, the disclaimant argued that a
disclaimer that did not satisfy the requirements of Sec. 25.2511-
1(c)(2) was nonetheless effective for estate and gift tax purposes
because the trust interest that was disclaimed was created pursuant to
a transfer in trust made prior to the enactment of the federal gift
tax. Accordingly, the disclaimant argued that the interest was not
created in a ``taxable transfer'' prior to January 1, 1977, the
regulation did not apply and the disclaimer had only to be effective
under state law to avoid federal tax. The Service argued in both cases
that the term ``taxable transfer'' references a generic completed gift
under Sec. 25.2511-2 of the regulations. The Eleventh Circuit agreed
with the Service in Ordway, while the Eighth Circuit disagreed in
Irvine. The Supreme Court did not resolve this issue in its review of
Irvine. The Court concluded that even if Sec. 25.2511-2 did not apply,
the disclaimer caused the transfer of an interest that had not been
timely disclaimed, and the transfer was subject to gift tax. In view of
the conflicting Eighth and Eleventh Circuit decisions in Irvine and
Ordway, the Treasury and the IRS believe that it is appropriate to
clarify the regulations.
2. Disclaimer of Jointly-Owned Property
The current regulations provide, in general, that in order to be a
qualified disclaimer under section 2518, a surviving joint tenant's
disclaimer of both an interest passing to the joint tenant on the
creation of the tenancy, and the survivorship interest in the joint
tenancy or tenancy by the entirety, must be made within 9 months after
the transfer creating the tenancy. Further, a joint tenant cannot make
a qualified disclaimer of any portion of a joint interest attributable
to consideration furnished by that tenant. t
Section 25.2518-2(c)(4)(ii) provides a special rule with respect to
joint tenancies and tenancies by the entirety in real property created
after 1976 but prior to 1982. During that period, section 2515 applied
in determining the gift tax consequences of the creation of a joint
tenancy with right of survivorship or tenancy by the entirety in real
property between husband and wife. Under section 2515, the creation of
the tenancy was not treated as a gift subject to gift tax unless the
parties elected to treat the creation of the tenancy as a gift. Rather,
a transfer subject to gift tax occurs on the termination of the tenancy
(other than by reason of the death of one of the tenants) if the
proceeds of termination are not divided according to the consideration
furnished by each party to the tenancy. Under Sec. 25.2518-2(c)(4)(ii),
in general, an interest in a tenancy created between 1976 and 1982 can
be disclaimed within 9 months of the date of death of the first joint
tenant to die, provided no election was made under section 2515 to
treat the creation of the tenancy as a gift. The disclaimant can
disclaim up to the portion of the tenancy included in the decedent's
gross estate under section 2040.
Section 2515 was enacted in the Internal Revenue Code of 1954,
effective for tenancies created after December 31, 1954, and was
repealed with respect to tenancies created after December 31, 1981, by
the Economic Recovery Tax Act of 1981. The Technical and Miscellaneous
Revenue Act of 1988 added section 2523(i)(3) which provides that, where
the spouse of a donor is not a citizen of the United States, the
principles of section 2515, as such section was in effect before its
repeal, shall apply (except for the provisions providing for an
election), in determining the gift tax consequences of the creation of
a joint tenancy or tenancy by the entirety in real property between
husband and wife.
Although section 2515 was effective for tenancies created after
1954 and before 1982, and, in addition, the principles of section 2515
are currently effective for tenancies created on or after July 14,
1988, where the donee spouse is not a citizen, the special rule in the
current regulation applies only to tenancies subject to section 2515
created after 1976 and before 1982.
The validity of the current regulations with respect to joint
interests that are unilaterally severable has been the subject of
repeated litigation. In Kennedy v. Commissioner, 804 F.2d 1332 (7th
Cir. 1986), the court held that the surviving spouse's survivorship
interest in the decedent's one-half interest in jointly held real
property was created on the decedent's death since, prior to that time,
the decedent could have unilaterally severed the interest and defeated
the spouse's survivorship right in that interest. Accordingly, the
court held that the survivorship interest could be disclaimed within 9
months of the decedent's death. The court concluded that the current
regulations are invalid to the extent that they require a survivorship
interest in a severable joint tenancy to be disclaimed within 9 months
of the creation of the tenancy. In Estate of Dancy v. Commissioner, 872
F.2d 84 (4th Cir. 1989) (involving personal property), and McDonald v.
Commissioner, 853 F.2d 1494 (8th Cir. 1988) (involving real property),
the courts also held the regulations invalid.
In McDonald, the Eighth Circuit remanded the case to the Tax Court
to determine if the disclaimer was otherwise qualified under section
2518. On remand, the Service argued that since the joint property was
attributable entirely to consideration furnished by the disclaiming
spouse, the spouse could not disclaim any interest in the property
under section 2518. The Tax Court rejected this argument in McDonald v.
Commissioner, T.C.M. 1989-140.
The Service announced in A.O.D. CC-1990-06 (Feb. 7, 1990) that it
will follow these decisions.
3. Disclaimer of Joint Bank Accounts
For gift tax purposes, the creation of a joint bank account is
treated as an incomplete transfer since, generally, the contributing
joint tenant may unilaterally withdraw contributed funds without the
consent of the other joint tenant. Accordingly, unless a
noncontributing joint tenant has withdrawn the funds, the transfer to a
joint bank account does not become complete before the death of the
first joint tenant.
Explanation of Provisions
1. Interests and Powers Subject to the Disclaimer Rules
The proposed amendment clarifies that the application of section
2518, or the commencement of the 9-month period, is not dependent on
the actual imposition of a transfer tax when the interest to be
disclaimed is created. The proposed amendment substitutes the statutory
language of section 2518(b)(2)(A), ``transfer creating the interest,''
for ``taxable transfer'' as the reference point for determining the
scope of the regulations as well as when the time period for making the
disclaimer commences. Under the proposed amendment, the term ``transfer
creating the interest'' includes any inter vivos transfer that would be
a completed gift under the gift tax regulations, whether or not a gift
tax liability arises on the transfer and whether or not the transfer
comes within the scope of the gift tax. Similarly, the amendment
clarifies that, for testamentary transfers, the transfer creating the
interest occurs on the date of the decedent's death, whether or not an
estate tax is imposed on the transfer and whether or not the transfer
comes within the scope of the estate tax. The amendment also clarifies
that, in the
[[Page 43199]]
case of a disclaimer of an interest passing pursuant to the exercise,
lapse, or release of a general power of appointment, the disclaimer
must be made within 9 months of the exercise, lapse, or release of the
power, regardless of whether the exercise, lapse, or release is subject
to estate or gift tax. The proposed regulations make conforming changes
to the estate and gift tax regulations.
2. Disclaimer of Jointly-Owned Property
The proposed amendments would revise the regulations to provide
that, in general, if a joint tenancy may be unilaterally severed by
either party, then a surviving joint tenant may disclaim the one-half
survivorship interest in property held in joint tenancy with right of
survivorship within 9 months of the death of the first joint tenant to
die, even if the surviving joint tenant provided some or all of the
consideration for the creation of the tenancy.
The rationale of the courts in Dancy, Kennedy, and McDonald does
not apply to joint interests that cannot be unilaterally severed under
applicable state law, such as interests held in tenancy by the
entirety. In tenancies by the entirety, the donee spouse's joint
interest in the property that cannot be unilaterally severed is created
on the date the tenancy is created. Therefore, the proposed amendment
to the regulations would reaffirm that any interest in a nonseverable
cotenancy, including the survivorship interest, must be disclaimed
within 9 months of the date of the creation of the tenancy. However,
the Service requests comments on whether or under what circumstances
(e.g., tenancy by the entirety ownership of a personal residence) the
rule applicable to unilaterally severable interests should apply to
interests that are not unilaterally severable.
The proposed amendments would extend the special rule in
Sec. 25.2518-2(c)(4)(ii) to tenancies created after December 31, 1954,
and on or before December 31, 1981, the entire period during which
section 2515 was in effect. In addition, the special rule would be
expanded to include tenancies created on or after July 14, 1988, where
the spouse of the donor is not a United States citizen. Under section
2523(i)(3), the creation of such tenancies is also subject to the rules
of former section 2515. The special rule reflects the gift tax
treatment of the creation of a joint tenancy or tenancy by the entirety
that was subject to section 2515. The relief afforded by the special
rule will apply to all tenancies that were subject on creation to
section 2515. Under the special rule, the amount that the surviving
joint tenant can disclaim is dependent on the amount that is includible
in the decedent's gross estate.
3. Disclaimer of Joint Bank Accounts
The proposed regulations provide specific rules to address the
disclaimer of joint bank accounts. Because the transfer creating the
interest in the funds remaining in the bank account at the death of the
first joint tenant to die occurs at that tenant's death, the 9-month
period for making the qualified disclaimer commences on the death of
the first joint tenant.
The proposed regulations also clarify that a surviving joint tenant
cannot disclaim any portion of the account attributable to that
survivor's contribution to the account. These contributed funds are
property owned by the survivor during the cotenancy and the survivor
cannot disclaim property the survivor has always owned and never
transferred. Further, the proposed regulations clarify that this rule
applies even if only one-half of the property is included in the
decedent's gross estate under section 2040(b) because the joint tenants
are married.
The proposed regulations also clarify the estate tax treatment of a
disclaimed interest in a joint bank account. State law generally treats
a disclaimant as predeceasing the decedent with respect to the
disclaimed interest. The disclaimed interest in a joint bank account
(the creation of which is treated as an incomplete gift under the gift
tax regulations), would lose its character as joint property and pass
through the decedent's probate estate. Accordingly, under such
circumstances, the interest disclaimed is subject to inclusion in the
decedent's gross estate under section 2033, rather than section 2040(a)
(providing for inclusion based on the contribution of each tenant) or
section 2040(b) (providing for inclusion of one-half the property in
the case of certain joint tenancies between spouses). The balance of
the account not subject to the disclaimer retains its character as
joint property and is includible in the decedent's gross estate under
either section 2040(a) or section 2040(b).
These rules are also made applicable to joint brokerage accounts,
since the transfer tax treatment of these accounts generally parallels
the treatment of joint bank accounts. See Rev. Rul. 69-148, 1969-1 C.B.
226.
Proposed Effective Dates
The amendments to Secs. 25.2518-1(a) and 25.2518-2(c)(3)
(substituting the statutory language in section 2518(b)(2)(A)
``transfer creating the interest,'' for ``taxable transfer'') and
conforming changes to Secs. 20.2041-3(d)(6)(i), 20.2046-1, 20.2056(d)-
2(a) and (b), 25.2511-1(c)(1), 25.2514-3(c)(5), are proposed to be
effective for transfers creating the interest or power to be disclaimed
made after the date of publication as final regulations in the Federal
Register. However, Treasury and the IRS do not view these amendments as
prescribing any new rules for applying section 2518.
The amendments to Sec. 25.2518-2(c)(4) (relating to the disclaimer
of joint property and bank accounts) are proposed to be effective for
disclaimers made after the date these regulations are published in the
Federal Register as final regulations.
Special Analyses
It has been determined that this notice of proposed rulemaking is
not a significant regulatory action as defined in E.O. 12866.
Therefore, a regulatory assessment is not required. It has also been
determined that section 553(b) of the Administrative Procedures Act (5
U.S.C. chapter 5) does not apply to these regulations and because the
regulations do not impose a collection of information on small
entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not
apply. Pursuant to section 7805(f) of the Internal Revenue Code, this
notice of proposed rulemaking will be submitted to the Chief Counsel
for Advocacy of the Small Business Administration for comment on its
impact on small business.
Comments and Requests for a Public Hearing
Before these proposed regulations are adopted as final regulations,
consideration will be given to any written comments (a signed original
and eight (8) copies) that are submitted timely to the IRS. All
comments will be available for public inspection and copying. A public
hearing may be scheduled if requested in writing by any person that
timely submits written comments. If a public hearing is scheduled,
notice of the date, time, and place of the hearing will be published in
the Federal Register.
Drafting Information
The principal author of these regulations is Dale Carlton, Office
of the Assistant Chief Counsel (Passthroughs and Special Industries).
However, personnel from other offices of the IRS and Treasury
Department participated in their development.
[[Page 43200]]
List of Subjects
26 CFR Part 20
Estate taxes, Reporting and recordkeeping requirements.
26 CFR Part 25
Gift taxes, Reporting and recordkeeping requirements.
Proposed Amendments to the Regulations
Accordingly, 26 CFR parts 20 and 25 are proposed to be amended as
follows:
PART 20--ESTATE TAX; ESTATES OF DECEDENTS DYING AFTER AUGUST 16,
1954
Paragraph 1. The authority citation for part 20 continues to read
in part:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 20.2041-3 is amended as follows:
1. Paragraph (d)(6)(i) is amended by revising the first sentence
and by adding a new second sentence.
2. Paragraph (d)(6)(iii) is added.
The additions and revisions read as follows:
Sec. 20.2041-3 Powers of appointment created after October 21, 1942.
* * * * *
(d) * * *
(6)(i) A disclaimer or renunciation of a general power of
appointment created in a transfer made after December 31, 1976, is not
considered to be the release of the power if the disclaimer or
renunciation is a qualified disclaimer as described in section 2518 and
the corresponding regulations. For rules relating to when the transfer
creating the power occurs, see Sec. 25.2518-2(c)(3). * * *
* * * * *
(iii) The first and second sentences of paragraph (d)(6)(i) of this
section are effective for transfers creating the power to be disclaimed
made after the date of publication as final regulations in the Federal
Register.
* * * * *
Par. 3. Section 20.2046-1 is revised to read as follows:
Sec. 20.2046-1 Disclaimed property.
(a) This section shall apply to the disclaimer or renunciation of
an interest in the person disclaiming by a transfer made after December
31, 1976. For rules relating to when the transfer creating the interest
occurs, see Sec. 25.2518-2 (c)(3) and (c)(4) of chapter 12. If a
qualified disclaimer is made with respect to such a transfer, the
Federal estate tax provisions are to apply with respect to the property
interest disclaimed as if the interest had never been transferred to
the person making the disclaimer. See section 2518 and the
corresponding regulations for rules relating to a qualified disclaimer.
(b) The first and second sentences of this section are effective
for transfers creating the interest to be disclaimed made after the
date of publication as final regulations in the Federal Register.
Par. 4. Section 20.2056(d)-2 is amended as follows:
1. Paragraph (a) is amended by revising the first sentence and
adding a new sentence after the first sentence, and paragraph (b) is
revised.
2. A new paragraph (c) is added.
The additions and revisions read as follows:
Sec. 20.2056(d)-2 Marital deduction; effect of disclaimers of post-
December 31, 1976 transfers.
(a) * * * If a surviving spouse disclaims an interest in property
passing to such spouse from the decedent created in a transfer made
after December 31, 1976, the effectiveness of the disclaimer will be
determined by section 2518 and the corresponding regulations. For rules
relating to when the transfer creating the interest occurs, see
Sec. 25.2518-2 (c)(3) and (c)(4) of chapter 12. * * *
(b) Disclaimer by a person other than a surviving spouse. If an
interest in property passes to a person other than the surviving spouse
from a decedent, and the interest is created in a transfer made after
December 31, 1976, and--
(1) The person other than the surviving spouse makes a qualified
disclaimer with respect to such interest, and
(2) The surviving spouse is entitled to such interest in property
as a result of such disclaimer, the disclaimed interest is treated as
passing directly from the decedent to the surviving spouse. For rules
relating to when the transfer creating the interest occurs, see
Sec. 25.2518-2 (c)(3) and (c)(4) of chapter 12.
(c) Effective date. The first and second sentences of paragraphs
(a) and (b) of this section are effective for transfers creating the
interest to be disclaimed made after the date of publication as final
regulations in the Federal Register.
PART 25--GIFT TAX; GIFTS MADE AFTER DECEMBER 31, 1954
Par. 5. The authority citation for part 25 is amended by adding an
entry in numerical order to read as follows:
Authority: 26 U.S.C. 7805 * * * Section 25.2518-2 is also issued
under 26 U.S.C. 2518(b). * * *
Par. 6. Section 25.2511-1 is amended as follows:
1. In paragraph (c)(1), the fourth sentence is revised.
2. A new paragraph (c)(3) is added.
The additions and revisions read as follows:
Sec. 25.2511-1 Transfers in general.
* * * * *
(c)(1) * * * However, in the case of a transfer creating an
interest in property (within the meaning of Sec. 25.2518-2 (c)(3) and
(c)(4)) made after December 31, 1976, this paragraph (c)(1) shall not
apply to the donee if, as a result of a qualified disclaimer by the
donee the interest passes to a different donee. * * *
* * * * *
(3) The fourth sentence of paragraph (c)(1) of this section is
effective for transfers creating an interest to be disclaimed made
after the date of publication as final regulations in the Federal
Register.
* * * * *
Par. 7. Section 25.2514-3 is amended as follows:
1. Paragraph (c)(5) is amended by revising the first sentence and
adding a new second sentence.
2. A new paragraph (c)(7) is added.
The additions and revisions read as follows:
Sec. 25.2514-3 Powers of appointment created after October 21, 1942.
* * * * *
(c) * * *
(5) * * * A disclaimer or renunciation of a general power of
appointment created in a transfer made after December 31, 1976, is not
considered a release of the power for gift tax purposes if the
disclaimer or renunciation is a qualified disclaimer as described in
section 2518 and the corresponding regulations. For rules relating to
when a transfer creating the power occurs, see Sec. 25.2518-2(c)(3). *
* *
* * * * *
(7) The first and second sentences of paragraph (5) of
Sec. 25.2514-3(c) are effective for transfers creating the power to be
disclaimed made after the date of publication as final regulations in
the Federal Register.
* * * * *
Par. 8. Section 25.2518-1 is amended as follows:
1. Paragraph (a)(1) is revised.
2. In paragraph (a)(2), the third, fourth, and fifth sentences of
the Example are revised and a new sentence is added after the third
sentence.
3. A new paragraph (a)(3) is added.
The additions and revisions read as follows:
[[Page 43201]]
Sec. 25.2518-1 Qualified disclaimers of property; In general.
(a) * * * (1) In general. The rules described in Secs. 25.2518-1
through 25.2518-3 apply to the qualified disclaimer of an interest in
property which is created in the person disclaiming by a transfer made
after December 31, 1976. In general, a qualified disclaimer is an
irrevocable and unqualified refusal to accept the ownership of an
interest in property. For rules relating to the determination of when a
transfer creating an interest occurs, see Sec. 25.2518-2(c) (3) and
(4).
(2) * * * The transfer creating the remainder interest in the
trust occurred in 1968. See Sec. 25.2511-1(c)(2). Therefore, section
2518 does not apply to the disclaimer of the remainder interest
because the transfer creating the interest was made prior to January
1, 1977. If, however, W had caused the gift to be incomplete by also
retaining the power to designate the person or persons to receive
the trust principal at death, and, as a result, no transfer (within
the meaning of Sec. 25.2511-1(c)(2)) of the remainder interest was
made at the time of the creation of the trust, section 2518 would
apply to any disclaimer made after W's death with respect to an
interest in the trust property.
(3) Section 25.2518-1(a)(1) is effective for transfers creating the
interest to be disclaimed made after the date of publication as final
regulations in the Federal Register.
* * * * *
Par. 9. Section 25.2518-2 is amended as follows:
1. Paragraph (c)(3) is redesignated as paragraph (c)(3)(i).
2. Newly designated paragraph (c)(3)(i) is amended as follows:
a. In the first, eighth, and eleventh sentences, the word
``taxable'' is removed in each place it appears.
b. In the third and ninth sentences, the language ``taxable
transfer'' is removed and ``transfer creating an interest'' is added in
each place it appears.
c. The fourth, fifth, sixth, and seventh sentences are revised.
d. A new sentence is added after the fourth sentence.
3. A new paragraph (c)(3)(ii) is added.
4. Paragraph (c)(4) is revised.
5. In paragraph (c)(5), Example (7) is revised.
6. In paragraph (c)(5), Example (9) is redesignated as Example (13)
and newly designated Example (13) is revised.
7. In paragraph (c)(5), Example (8) is redesignated as Example (9)
and newly designated Example (9) is revised.
8. In paragraph (c)(5), Example (10) is redesignated as Example
(12) and the first sentence of newly designated Example (12) is
revised.
9. In paragraph (c)(5), new Examples (8), (10), (11), (14), and
(15), are added.
The additions and revisions read as follows:
Sec. 25.2518-2 Requirements for a qualified disclaimer.
* * * * *
(c) * * *
(3)(i) * * * With respect to transfers made by a decedent at death
or transfers that become irrevocable at death, the transfer creating
the interest occurs on the date of the decedent's death, even if an
estate tax is not imposed on the transfer. For example, a bequest of
foreign-situs property by a nonresident alien decedent is regarded as a
transfer creating an interest in property even if the transfer would
not be subject to estate tax. If there is a transfer creating an
interest in property during the transferor's lifetime and such interest
is later included in the transferor's gross estate for estate tax
purposes (or would have been included if such interest were subject to
estate tax), the 9-month period for making the qualified disclaimer is
determined with reference to the earlier transfer creating the
interest. In the case of a general power of appointment, the holder of
the power has a 9-month period after the transfer creating the power in
which to disclaim. If a person to whom any interest in property passes
by reason of the exercise, release, or lapse of a general power desires
to make a qualified disclaimer, the disclaimer must be made within a 9-
month period after the exercise, release, or lapse regardless of
whether the exercise, release, or lapse is subject to estate or gift
tax. * * *
(ii) Sentences 1, 3 through 10, and 12 of paragraph (c)(3)(i) of
this section are effective for transfers creating the interest to be
disclaimed made after the date of publication as final regulations in
the Federal Register.
(4) Joint property--(i) Interests that are unilaterally severable.
Except as provided in paragraph (c)(4)(iv) of this section with respect
to joint bank accounts and joint brokerage accounts, in the case of an
interest in a joint tenancy with right of survivorship or a tenancy by
the entirety that either joint tenant can sever unilaterally under
local law, a qualified disclaimer of the interest to which the
disclaimant succeeds as donee upon creation of the tenancy must be made
no later than 9 months after the creation of the tenancy. A qualified
disclaimer of the survivorship interest to which the survivor succeeds
by operation of law upon the death of the first joint tenant to die
must be made no later than 9 months after the death of the first joint
tenant to die. See, however, section 2518(b)(2)(B) for a special rule
in the case of disclaimers by persons under age 21. Except as provided
in paragraph (c)(4)(iii) of this section (with respect to certain
tenancies in real property created after 1954 and before 1982 and
certain tenancies created on or after July 14, 1988), the interest that
may be disclaimed within 9 months after the death of the first joint
tenant to die is the interest to which the disclaimant succeeds by
right of survivorship, regardless of the portion of the property
attributable to consideration furnished by the disclaimant and
regardless of the portion of the property that is included in the
decedent's gross estate under section 2040. See Sec. 25.2518-2(c)(5),
Example (7).
(ii) Interests that are not unilaterally severable. Except as
provided in paragraph (c)(4)(iii) of this section with respect to
interests created after 1954 and before 1982 and certain interests
created after July 14, 1988, if an interest in joint property with
right of survivorship or an interest held as a tenant by the entirety
is not unilaterally severable under local law, a qualified disclaimer
of the interest or any portion of the interest must be made no later
than 9 months after the transaction creating the tenancy. A tenant by
the entirety or other cotenant who cannot unilaterally sever the
interest under applicable local law cannot make a qualified disclaimer
of any portion of the joint interest to the extent attributable to
consideration furnished by that tenant even if the disclaimer is made
within 9 months of the creation of the tenancy. See Sec. 25.2518-
2(c)(5), Example (8).
(iii) Tenancies in real property between spouses created before
1982 and certain tenancies in real property between spouses created on
or after July 14, 1988. In the case of a joint tenancy between spouses
or a tenancy by the entirety in real property created after 1954 and
before 1982 where no election was made under section 2515, or a joint
tenancy between spouses or a tenancy by the entirety in real property
created on or after July 14, 1988, to which section 2523(i)(3) applies
(relating to the creation of a tenancy where the spouse of the donor is
not a United States citizen), the surviving spouse must make a
qualified disclaimer no later than 9 months after the death of the
first spouse to die. The surviving spouse may disclaim any portion of
the joint interest that is includible in the decedent's gross estate
under section 2040. See Sec. 25.2518-2(c)(5), Examples (9) and (10).
[[Page 43202]]
(iv) Special rule for joint bank and brokerage accounts established
between spouses or between persons other than husband and wife. In the
case of a transfer to a joint bank account or a joint brokerage
account, if a transferor may unilaterally withdraw the transferor's own
contributions from the account without the consent of the other
cotenant, the transfer creating the survivor's interest in a decedent's
share of the account occurs on the death of the deceased cotenant.
Accordingly, if a surviving joint tenant desires to make a qualified
disclaimer with respect to funds contributed by a deceased cotenant,
the disclaimer must be made within 9 months of the cotenant's death.
The surviving joint tenant may not disclaim any portion of the joint
account attributable to consideration furnished by that surviving joint
tenant. See Sec. 25.2518-2(c)(5), Examples 13, 14 and 15, regarding the
treatment of disclaimed interests under sections 2518, 2033 and 2040.
(v) Effective date. This paragraph (c)(4) is effective for
disclaimers made after the date of publication as final regulations in
the Federal Register.
(5) Examples. * * *
* * * * *
Example (7). On February 1, 1990, A purchased real property with
A's funds. Title to the property was conveyed to ``A and B, as joint
tenants with right of survivorship.'' Under applicable state law,
the joint interest is unilaterally severable by either tenant. B
dies on May 1, 1997, and is survived by A. On January 1, 1998, A
disclaims the one-half survivorship interest in the property to
which A succeeds as a result of B's death. Assuming that the other
requirements of section 2518(b) are satisfied, A has made a
qualified disclaimer of the one-half survivorship interest (but not
the interest retained by A upon the creation of the tenancy, which
may not be disclaimed by A). The result is the same whether or not A
and B are married and regardless of the proportion of consideration
furnished by A and B in purchasing the property.
Example (8). On March 1, 1997, A purchases a parcel of real
property that is conveyed to A and A's spouse, B, as tenants by the
entirety. A provides the consideration for the purchase. Under
applicable state law, the tenancy cannot be unilaterally severed by
either tenant. In order to be a qualified disclaimer, any disclaimer
by B of B's interest in the property must be made within 9 months of
the creation of the tenancy (i.e., within 9 months of March 1,
1997). Since A provided the entire consideration for the property
and the tenancy is not unilaterally severable, A may not disclaim
any interest in the tenancy.
Example (9). On March 1, 1977, H and W purchase a tract of
vacant land which is conveyed to them as tenants by the entirety.
The entire consideration is paid by H. H does not elect, under
section 2515, to have the transaction treated as a transfer for
purposes of Chapter 12. H dies on June 1, 1997. W can disclaim one-
half of the joint interest because this is the interest includible
in H's gross estate under section 2040(b). Assuming that W's
disclaimer is received by the executor of H's estate no later than 9
months after June 1, 1997, and the other requirements of section
2518(b) are satisfied, W's disclaimer of one-half of the property
would be a qualified disclaimer because the transfer which created
W's interest is treated as not occurring until H's death, since no
election was made under section 2515. The result would be the same
if the property was held in joint tenancy with right of survivorship
that was unilaterally severable under local law.
Example (10). Assume the same facts as in example (9) except
that the land was purchased on March 1, 1989, and W is not a United
States citizen. W has until 9 months after June 1, 1997, to make a
qualified disclaimer, and can disclaim the entire joint interest
because this is the interest includible in H's gross estate under
section 2040(a). The result would be the same if the property was
held in joint tenancy with right of survivorship that was
unilaterally severable under local law.
Example (11). In 1986, spouses A and B purchased a personal
residence taking title as joint tenants with right of survivorship.
Under applicable state law, the interest in the tenancy may be
unilaterally severed by either party. B dies on July 10, 1997. A
wishes to disclaim the one-half undivided interest to which A would
succeed by right of survivorship. If A makes the disclaimer, the
property interest would pass under B's will to their child C. C, an
adult, and A resided in the residence at B's death and will continue
to reside there in the future. A continues to own a one-half
undivided interest in the property. Assuming that the other
requirements of section 2518(b) are satisfied, A may make a
qualified disclaimer with respect to the one-half undivided
survivorship interest in the residence if A delivers the written
disclaimer to the personal representative of B's estate by April 10,
1998, since A is not deemed to have accepted the interest or any of
its benefits prior to that time and A's occupancy of the residence
after B's death is consistent with A's retained undivided ownership
interest.
Example (12). H and W, husband and wife, reside in state X, a
community property state. * * *
Example (13). On July 1, 1990, A opens a bank account that is
held jointly with B, A's spouse, and transfers $50,000 of A's money
to the account. A and B are United States citizens. A can regain the
entire account without B's consent. The transfer is not a completed
gift under Sec. 25.2511-1(h)(4). A dies on August 15, 1997, and B
disclaims the entire amount in the bank account on October 15, 1997.
Assuming that the remaining requirements of section 2518(b) are
satisfied, B made a qualified disclaimer under section 2518(a)
because the disclaimer was made within 9 months after A's death at
which time B had succeeded to full dominion and control over the
account. Under state law, B is treated as predeceasing A with
respect to the disclaimed interest. The disclaimed account balance
passes through A's probate estate and is no longer joint property
includible in A's gross estate under section 2040. The entire
account is, instead, includible in A's gross estate under section
2033. The result would be the same if A and B were not married.
Example (14). The facts are the same as Example (13), except
that B, rather than A, dies on August 15, 1997. A may not make a
qualified disclaimer with respect to any of the funds in the bank
account, because A furnished the funds for the entire account and A
did not relinquish dominion and control over the funds.
Example (15). The facts are the same as Example (13), except
that B disclaims 40 percent of the funds in the account. Since,
under state law, B is treated as predeceasing A with respect to the
disclaimed interest, the 40 percent portion of the account balance
that was disclaimed passes as part of A's probate estate, and is no
longer characterized as joint property. This 40 percent portion of
the account balance is, therefore, includible in A's gross estate
under section 2033. The remaining 60 percent of the account balance
that was not disclaimed retains its character as joint property and,
therefore, is includible in A's gross estate as provided in section
2040(b). Therefore, 30 percent (\1/2\ x 60 percent) of the account
balance is includible in A's gross estate under section 2040(b), and
a total of 70 percent of the aggregate account balance is includible
in A's gross estate. If A and B were not married, then the 40
percent portion of the account subject to the disclaimer would be
includible in A's gross estate as provided in section 2033 and the
60 percent portion of the account not subject to the disclaimer
would be includible in A's gross estate as provided in section
2040(a), because A furnished all of the funds with respect to the
account.
Margaret Milner Richardson,
Commissioner of Internal Revenue,
[FR Doc. 96-21091 Filed 8-20-96; 8:45 am]
BILLING CODE 4830-01-U