IRS publishes proposed regulations on disclaimers.

• Author: Coplan, Robert

The IRS recently issued proposed regulations (REG-208215-91), relating to the treatment of disclaimers for estate and gift tax purposes, that clarify existing provisions governing the disclaimer of certain property interests and powers. These proposed regulations would be effective for transfers creating the interest or power to be disclaimed made after the date of publication of final regulations in the Federal Register. In addition, the proposed regulations armed the rules affecting persons who disclaim powers or interests in jointly owned property. Likewise, the proposed rules dealing with joint tenancy and joint bank accounts are proposed to be effective for disclaimers made after final regulations are published in the Federal Register.

Interests and Powers Subject to

the Disclaimer Rules

Under Sec. 2518(a), if a person makes a qualified disclaimer, for transfer tax purposes the interest disclaimed is treated as never having passed to the disclaimant. In order to meet the definition of a qualified disclaimer under Sec. 2518(b)(2)(A), an interest must be disclaimed within nine months of the date of "the transfer creating the interest" in the disclaimant. A person to whom any interest passes by reason of the exercise or lapse of a general power of appointment also must disclaim the interest passing within nine months after the exercise or lapse.

Current Regs. Sec. 25.2518-1(a)(1) provides that Sec. 2518 applies to the disclaimer of interests or powers created pursuant to "taxable transfers" made after Dec. 31, 1976. Regs. Sec. 25.2518-2(c)(3) further provides that the nine-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.

Prop. Regs. Sec. 25.2518-2(c)(3)(i) clarifies that the application of Sec. 2518, or the commencement of the nine-month period, does not depend on the actual imposition of a transfer tax when the interest to be disclaimed is created. For instance, if the disclaimer involved an interest in foreign-situs property transferred by gift, devise or bequest by a nonresident alien donor or decedent, it would have to comply with the requirements of Sec. 2518, to be a qualified disclaimer - notwithstanding the lack of a "taxable transfer" creating the property interest. In addition, in the case of a disclaimer of an interest passing pursuant to the exercise, lapse or release of a general power of appointment, the disclaimer...