Charitable contributions: charitable deduction for partial disclaimer allowed.

• Author: Beavers, James A.

The Eighth Circuit held that a partial disclaimer of an interest in an estate was valid and that the estate was entitled to a charitable deduction for the portion of the disclaimed amount that was given to a charitable foundation.

Background

In her will, Helen Christiansen named her only child, Christine Christiansen Hamilton (Hamilton), as her primary beneficiary and the executor of her estate. Hamilton disclaimed her interest in the estate "as finally determined for federal estate tax purposes" as to all amounts over $6.35 million. Christiansen's will provided that 25% of any disclaimed amounts were to go to a charitable foundation. The IRS contested both the validity of the disclaimer and the amount reported as the estate's overall value.

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The estate and the IRS eventually settled regarding the valuation of the estate, resulting in a larger value for the estate based largely on adjustments to marketability discounts the estate had claimed for limited partnership interests in a family ranching enterprise. This caused a corresponding increase in the value of the contribution to the charitable foundation. The IRS, however, denied the estate an increased charitable deduction, arguing that the act of challenging the estate's return and the resulting adjustment to the estate's value served as post-death, post-disclaimer contingencies that disqualified the disclaimer under Sec. 2518 and Regs. Sec. 20.2055-2(b)(l). The estate challenged the IRS's determination in Tax Court, and the Tax Court held in favor of the estate. The IRS appealed the Tax Court's decision to the Eighth Circuit.

IRS's New Argument

In addition to its post-disclaimer contingency argument, the IRS contended that all fractional disclaimers that have a practical effect of disclaiming all amounts above a fixed dollar amount should be disallowed as against public policy because these disclaimers fail to preserve a financial incentive for the IRS to audit an estate's return. According to the IRS, with such a disclaimer, any post-challenge adjustment to the value of an estate could consist entirely of an increased charitable donation, providing no possibility of increased tax receipts as an incentive for the IRS to audit the return and ensure an accurate valuation of the estate.

The Eighth Circuit's Decision

The Eighth Circuit rejected both of the IRS's arguments and affirmed the Tax Court. The court found that in its first argument, the IRS had failed "to...