Drye v. United States

Supreme Court of the United States · 1999 · Federal Courts

Federal tax liensPropertyState and federal law26 U.S.C. § 6321federal tax lienrights to propertydisclaimerinheritance

Facts

When Drye's mother died intestate, Drye was her sole heir under Arkansas law and the estate was worth about $233,000. At that time, Drye was insolvent and already owed the United States substantial unpaid tax assessments for which federal tax liens had been filed. Nearly six months after his mother's death, Drye filed a written disclaimer under Arkansas law, causing the estate to pass to his daughter, who then placed the assets into a trust benefiting Drye and his parents. The IRS then asserted a lien against the trust as Drye's nominee and sought to levy on the trust assets.

Issue

Whether Drye's interest as sole heir in his mother's estate constituted 'property' or a 'right[] to property' under 26 U.S.C. § 6321 so that federal tax liens attached, notwithstanding his later state-law disclaimer that retroactively redirected the inheritance to his daughter.

Rule

For purposes of federal tax lien statutes, courts first look to state law to determine what rights or interests the taxpayer has, and then apply federal law to decide whether those state-delineated rights amount to 'property' or 'rights to property' under § 6321. A state-law disclaimer cannot defeat a federal tax lien once the taxpayer has state-created rights amounting to a beneficial interest, and the important consideration is the breadth of the control the taxpayer could exercise over the property.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

In Columbus, Ohio, Lena Ortiz dies intestate, and her son, Mateo Ortiz, is the sole heir under Ohio law. Mateo already owes assessed federal taxes, and after his mother's death he files a valid state-law disclaimer causing the estate to pass to his daughter.

If the IRS seeks to enforce its existing federal tax lien against the inherited assets, which analysis is most consistent with the governing rule?

Explanation. The governing rule is two-step. State law identifies the taxpayer's underlying rights or interests, but federal law determines whether those rights count as 'property' or 'rights to property' under 26 U.S.C. § 6321. A state disclaimer rule does not control the ultimate federal classification question.