Qualified disclaimers and federal tax liens.

• Author: Bricher, James

The Federal government has the authority to attach a hen on all of a taxpayer's property for unpaid taxes, penalties and interest. A situation could arise in which a taxpayer subject to a tax hen is an estate beneficiary. In some situations, it may be advisable for the taxpayer to disclaim his beneficial interest to avoid subjecting the inheritance to the tax hen. The Federal courts remain divided on the issue of whether a qualified disclaimer may be used to defeat a Federal tax hen; this issue will probably have to be settled by the U.S. Supreme Court. In recent years, four Circuits have attempted to settle this issue, but remain evenly split in their opinions.

The relevant provisions are Secs. 2046, 2518 and 6321. Under Secs. 2046 and 2518, a qualified disclaimer made within nine months of a decedent's bequest is treated as if the disclaimant had predeceased the decedent (the disclaimer provisions in most states follow the Federal rule). Sec. 6321 creates a lien in favor of the U.S. on all property and rights to property, whether real or personal, belonging to any person who owes taxes (including interest and penalties) after demand has been made by the IRS.

In all four cases, an heir who owed back taxes to the Federal government disclaimed an inheritance. The disclaiming heirs argued that, as a result of the disclaimer, no interest in property or right to property was ever created; therefore, a Federal tax hen could not attach to the disclaimed property. Conversely, the Service argued that either the heirs should be treated as having received the property at the decedent's death and then disclaimed it, or that because the heirs had the potential to receive the property, a property right was created. In either instance, the IRS argued that the Federal hen attached to the heir's interest.

In Mapes, 15 F3d 138 (9th Cir. 1994), the court held that Arizona law, not Federal law, determined whether a taxpayer had any interest in property subject to a Federal lien. The court concluded that the taxpayer did not have an interest in the inherited property under Arizona law; the effect of the...