DOJ Argues Decedent's Disclaimer Was Invalid

Edward Walshire's brother John died testate in 1980. Under John's will, Edward received one quarter of John's residuary estate. In 1981 Edward executed and delivered a disclaimer of his one-quarter interest in the residuary estate, reserving to himself all the income from his one-quarter share in the estate. The residue of the estate was converted to certificates of deposit. Edward received no benefit from the remainder interest, as he did not have the right to invade the principal of the CDs for any purpose, or to direct to whom the principal of the CDs would pass upon his death.

Edward died in 1995 and his estate filed a timely estate tax return. The government issued a deficiency determination, assessing additional estate taxes against Edward's estate based on the inherited property that Edward had disclaimed in 1981. Edward's estate paid the additional tax and filed for a refund. The IRS determined that the disclaimer was not a "qualified disclaimer" under section 2518 and included the property that was the subject of the disclaimer in Edward's taxable estate. Edward's estate then filed a refund suit in U.S. district court. The government moved for summary judgment, as did Edward's estate. The district court agreed with the government's position and granted its motion for summary judgment.

The Justice Department argues that the district court correctly held that under reg. section 25.2518-3(b), Edward did not make a qualified disclaimer of the remainder interest in the property left to him by his brother because he retained a life estate in that property. The DOJ further insists that the court correctly held that reg. section 25.2518-3(b) is valid.

[1] This case concerns the effect to be accorded a disclaimer by Edward Walshire (decedent) of certain property left to him by his brother John. Decedent disclaimed a remainder interest in the property while retaining a life estate in the use of and income from such property. The IRS determined that this disclaimer did not constitute a "qualified disclaimer" under I.R.C. section 2518 because decedent did not disclaim an "undivided portion" of the property. Treasury Regulation section 25.2518-3(b) provides that a disclaimer of a remainder interest in property while retaining a life estate is not a qualified disclaimer of an undivided portion of an interest in property. The district court correctly concluded that the regulation represents a reasonable interpretation of the statute and, therefore, correctly rejected the estate's contention that the regulation is invalid, and dismissed its suit for refund.

[2] Counsel for the appellee respectfully inform the Court that they believe oral argument of 15 minutes per side might be helpful to the Court in deciding this appeal.

TABLE OF CONTENTS

[3] Following an audit, the Internal Revenue Service (IRS) determined a tax deficiency with respect to the Federal estate tax return filed by the Estate of Edward M. Walshire (the estate). (A. 4.) ¹ The estate paid the amount of the assessed tax deficiency, plus interest. The estate filed a timely administrative claim for refund on January 29, 1999. (A. 14.) See I.R.C. section 6511(a) (26 U.S.C.).

[4] On November 18, 1999, the estate commenced this refund suit in the United States District Court for the Northern District of Iowa. (A. 10.) The refund suit was timely under to I.R.C. section 6532(a). The district court had jurisdiction under 28 U.S.C. section 1346(a).

[5] On April 16, 2001, following the filing of cross motions for summary judgment, the district court issued an order granting the Government's motion for summary judgment and denying the estate's motion for summary judgment. (A. 102.) The district court entered its judgment on May 3, 2001. (Add. 15.) That judgment disposed of all the claims of all the parties, and is, therefore, final and appealable. The estate filed its notice of appeal on June 14, 2001. (A. 116.) This appeal is timely under 28 U.S.C. section 2107. This Court has jurisdiction under 28 U.S.C. section 1291.

STATEMENT OF THE ISSUE

[6] Whether the district court correctly determined that decedent's disclaimer of the remainder interest in property he received from the estate of his brother, John, while retaining a life interest in that property was not a qualified disclaimer under I.R.C. section 2518.

[7] The Government relies primarily on the following authorities:

I.R.C. section 2518 (26 U.S.C.);

[8] On November 18, 1999, the Estate of Edward M. Walshire filed suit in the United States District Court for the Northern District of Iowa seeking a refund of $64,426.02 in estate tax. (A. 10.) The sole issue was whether Edward M. Walshire (decedent) made a "qualified disclaimer" under I.R.C. section 2518 when he disclaimed the remainder interest in property he received from the estate of his brother, W. John Walshire (John), while retaining a life estate in the property. If the disclaimer was not a "qualified disclaimer" then the property was required to be included in decedent's estate, and the estate was not entitled to the refund it sought. On cross motions for summary judgment (A. 22, 96), the district court held for the Government. (A. 102; Add. 1.) Judgment was entered on May 3, 2001. (Add. 15.) The estate now appeals. (A. 116.)

STATEMENT OF THE FACTS

[9] Decedent's brother, John, died testate on October 20, 1980. (A. 11.) Pursuant to John's will, decedent received one-fourth of John's residuary estate. (A. 11, 40.) John's will further provided that if decedent had predeceased John, the decedent's share of the property should pass to decedent's "heirs who survive him, to each an equal share." (A. 40.) Decedent's heirs are his daughter, Louise Poduska, and his three sons, Everett, Lewis, and Thomas Walshire. (A. 43.)

[10] On July 16, 1981, decedent executed and delivered a disclaimer of his re-mainder interest in John's estate. The disclaimer stated (A. 75) (emphasis added):

I, E.M. Walshire, a residuary legatee and beneficiary in the

[12] These payments were converted into eight certificates of deposit. In November 1982, four certificates of deposit in the amount of $15,000 each were purchased and registered as follows (A. 45):

E.M. Walshire payable on death to Louise Poduska

E.M. Walshire payable on death to Lewis Walshire

E.M. Walshire payable on death to Thomas Walshire

E.M. Walshire payable on death to Everett Walshire.

[13] At some point, the certificates' registration was changed as follows (A. 79):

E.M. Walshire or Louise Poduska

E.M. Walshire or Lewis Walshire

E.M. Walshire or Thomas Walshire

E.M. Walshire or Everett Walshire.

[14] In July 1984, four certificates of deposit in the amount of $31,898.91 each were purchased and registered as follows (A. 50):

E.M. Walshire payable on death to Louise Poduska

E.M. Walshire payable on death to Lewis Walshire

E.M. Walshire payable on death to Thomas Walshire

E.M. Walshire payable on death to Everett Walshire.

[15] In February 1987, the names on the certificates were changed as follows (A. 50, 56):

E.M. Walshire or Louise Poduska

E.M. Walshire or Lewis Walshire

E.M. Walshire or Thomas Walshire

E.M. Walshire or Everett Walshire.

[16] Decedent received the income from the eight certificates of deposit during his life. (A. 15, 50-55, 57-70.) The certificates of deposit were kept in decedent's safe deposit boxes. (A. 79-80.)

[17] Decedent died on December 27, 1995. (A. 10.) An estate tax return was timely filed with the IRS. (A. 81.) The estate tax return did not include the eight certificates of deposit as part of the gross estate. The return indicated that the certificates of deposit were not property of the estate because decedent only held a life estate in each certificate of deposit. (A. 86.)

[18] The IRS determined that decedent's disclaimer was not a "qualified disclaimer" under I.R.C. section 2518(a), and that the certificates of deposit were includible in the decedent's estate and subject to estate tax. Accordingly, the IRS determined that additional estate tax of $64,426.02 was due. (A. 4.) The estate paid the additional tax, plus interest, and filed a timely claim for refund. (A. 14.) After six months elapsed and no action was taken by the IRS on the claim for refund, the estate instituted this refund action on November 18, 1999. (A. 10.)

[19] The Government moved for summary judgment, contending that, under I.R.C. section 2518 and Treas. Reg. section 25.2518-3(b), decedent's disclaimer of certain property interests was not a "qualified disclaimer", and therefore the certificates of deposit were required to be included in the decedent's estate, and as a result the estate was not entitled to a refund. The Government argued that a horizontal division of the property (between a life estate and a remainder interest) did not satisfy the "undivided portion" requirement of section 2518(c)(1), and contended that only a disclaimer of a vertical interest in the property (consisting of a fraction or percentage of each and every interest in the property) was permitted under the statute. (A. 22.) The estate filed a cross motion for summary judgment contending that under the plain language of section 2518 decedent's disclaimer was a qualified disclaimer, and that Treas. Reg. section 25.2518-3(b) was unreasonable and inconsistent with the text of section 2518. (A. 96-98.)

[20] The district court concluded that decedent did not make a qualified disclaimer under section 2518. The court stated that section 2518(b) defines "qualified disclaimer" as "an irrevocable and unqualified refusal by a person to accept an interest in property," and that under section 2518(c) a person can disclaim an "undivided portion" of an interest in property. (A. 108.) The court noted that the statute does not define the term "undivided portion." (A. 111.) The court observed that Treas. Reg. section 25.2518-3(b) provides that a disclaimer of a remainder interest in property while retaining a life estate (such as decedent did in the instant case) is not a qualified disclaimer of an undivided portion. (A. 109.) The court rejected the estate's assertion that the regulation is invalid. The court held that the regulation is not inconsistent with the plain language of the statute, and that it is a reasonable interpretation of Congressional intent. (A. 111-114.) Accordingly, the court held that the certificates of deposit are required to be included in decedent's gross estate and that the estate is not entitled to a tax refund. (A. 114.)

SUMMARY OF ARGUMENT

[21] This estate tax refund suit presents the question whether the disclaimer of a remainder interest in property while retaining a life estate in the property constitutes a "qualified disclaimer" under I.R.C. section 2518. If the disclaimer is not a qualified disclaimer, then the property is required to be included in Edward's estate, and the estate is not entitled to the refund it sought. The district court granted summary judgment in favor of the Government, correctly holding that the disclaimer of a remainder interest while retaining a life estate is not a disclaimer of an undivided portion of an interest in the property, and thus was not a qualified disclaimer.

[22] Under section 2518(a), a "qualified disclaimer" of any interest in property results in the property being excluded from the value of the gross estate. Section 2518(c) allows a person to disclaim an "undivided portion of an interest" in property. Treasury Regulation section 25.2518-3(b) provides that a disclaimer of a remainder interest in property while retaining a life estate is not a qualified disclaimer of an "undivided portion". The regulation interprets the language "undivided portion" of a property interest as a "fraction or percentage of each and every substantial interest or right owned by the disclaimant in such property." The district court correctly rejected the estate's assertion that this regulation is invalid.

[23] Treasury Regulation section 25.2518-3(b) is an interpretive regulation issued pursuant to the Secretary of the Treasury's authority under I.R.C. section 7805 to define and interpret statutory terms. An interpretive treasury regulation is valid if it offers a reasonable interpretation of the statutory language that is in harmony with the spirit of the statute. Treasury Regulation section 25.2518-3(b) is a reasonable interpretation of the statute that gives proper effect to the statute.

[24] Limiting disclaimers to those that consist of a fraction or percentage of each and every substantial interest owned by the disclaimant is consistent with the express terms of section 2518. Section 2518(c)(1) specifically includes the limitations set forth in section 2518(b). Section 2518(b)(3) provides that an "irrevocable and unqualified refusal by a person to accept an interest in property" is a "qualified disclaimer" only if such person "has not accepted the interest or any of its benefits." The property interest that decedent's brother John created in his will was a one-quarter interest in the residue of his estate. Decedent accepted the interest bequeathed to him and divided this single interest horizontally into two interests, a life estate and a remainder interest, and then chose to disclaim the remainder interest. The interpretation in the Treasury Regulation that a horizontal division such as this does not constitute a qualified disclaimer of an undivided portion of an interest in property is entirely consistent with section 2518(b)(3) and is reasonable.

[25] Interpreting the term "undivided portion" to include only disclaimers of a fraction or percentage of each and every interest in property also is consistent with the use of that term as it is found in several other sections of the Internal Revenue Code. Section 170, and by reference thereto, sections 2055 and 2522, set forth certain limitations on deductions where an "undivided portion" of an interest in property is involved. The language in Treasury Regulation section 25.2518-3(b) providing that an "undivided portion" of the individual's entire interest must consist of a "fraction or percentage" of each interest of the individual's entire interest in the property, a vertical division, mirrors the language in the regulations under those other sections of the Code. Congress presumptively was aware when it enacted section 2518(c)(1) that the phrase "undivided portion" had consistently been construed to include only a vertical division. There is no evidence that Congress did not intend the use of undivided portion in section 2518 to carry the meaning associated with these other sections of the Code.

[26] Finally, the determination that the disclaimer of a remainder interest while retaining a life estate is not a "qualified disclaimer" also is consistent with I.R.C. section 2036(a). Under section 2036(a), where a person makes an inter vivos transfer of property and reserves a life interest in the property until his death, the property generally is included in his gross estate for federal tax purposes. This is because Congress long ago recognized that the estate tax would be ineffective unless it also reaches property that a decedent gives away during his life by a transfer of an essentially testamentary character, viz., a transfer that reserves to him a significant interest in, or control over, the property until he dies. Under Treasury Regulation section 25.2518-3(b), the provisions of sections 2518 and 2036 are harmonized.

ARGUMENT

A. INTRODUCTION

[28] This case concerns the effect to be accorded a disclaimer by Edward Walshire (decedent) of certain property left to him by his brother John. Section 2001 of the Internal Revenue Code (26 U.S.C.) imposes a tax on the "taxable estate" of decedents. To determine the decedent's taxable estate for purposes of section 2001, the executor must ascertain the value of the decedent's gross estate. The "gross estate" is the "value at the time of death of all property, real or personal, tangible or intangible, wherever situated." I.R.C. section 2031(a). Section 2518 of the Code allows a person entitled to receive a share of an estate to refuse that share by means of a "qualified disclaimer." ² The effect of a qualified disclaimer is that the property passes to the next person in line as if the disclaimant never had any interest in it and without the disclaimant having to pay transfer taxes of that transfer. I.R.C. sections 2046, 2518(a); Treas. Reg. section 25.2518-1(b) (26 C.F.R.). Both parties agree that the validity of decedent's disclaimer for Federal estate tax purposes is governed by section 2518 of the Code. If, under section 2518, decedent made a valid "qualified disclaimer" of certain property left to him by his brother John, then those assets will be treated as if they had never been transferred from John to decedent, and thus would not be included in decedent's taxable estate. On the other hand, if the disclaimer was not a "qualified disclaimer," the property would be treated as having passed to decedent and would be includable in his taxable estate, giving rise to the additional estate tax at issue here.

B. THE DISTRICT COURT CORRECTLY HELD THAT UNDER TREASURY

[30] Treasury Regulation section 25.2518-3(b) states that a disclaimer of a remainder interest in property while retaining a life estate is not a qualified disclaimer of an "undivided portion". The regulation provides:

(b) DISCLAIMER OF UNDIVIDED PORTION. A disclaimer of an

C. THE DISTRICT COURT CORRECTLY HELD THAT TREASURY REGULATION

[32] Treasury Regulations are valid and must be upheld "if they implement the congressional mandate in some reasonable manner," Rowan Cos. v. United States, 452 U.S. 247, 252 (1981) (internal quotation marks and citation omitted), or if they are "based on a permissible construction of the statute," Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 843 (1984). See Miller v. United States, 65 F.3d 687, 689-90 (8th Cir. 1995). Under Chevron, a court engages in a two-step inquiry in a review of an agency's construction of a statute that it administers. First, the court must determine whether Congress has unambiguously addressed the precise question at issue; if so, that is the end of the inquiry. Chevron, 467 U.S. at 842-843. Second, "if the statute is silent or ambiguous with respect to the specific issue, the question for the court is whether the agency's answer is based on a permissible construction of the statute." Id. at 843. A reviewing court is not free to set aside a regulation simply because it would have interpreted the statute in a different manner. Id. at 843 n.11 ("The court need not conclude that the agency construction was the only one it permissibly could have adopted to uphold the construction, or even the reading the court would have reached if the question initially had arisen in a judicial proceeding."); Udall v. Tallman, 380 U.S. 1, 16 (1965)(same). Rather, "[t]he choice among reasonable interpretations is for the Commissioner, not the courts." National Muffler Dealers Ass'n , 440 U.S. at 488. See Fulman v. United States, 434 U.S. 528, 534, 536 (1978) (upholding regulation that had a "reasonable basis" in the statutory history, even though the taxpayer's challenge to its policy had "logical force"); see also Tate & Lyle, 87 F.3d at 104; Miller, 65 F.3d at 689-690. In short, where a court is confronted with ambiguous statutory language, "the task that confronts [it] is to decide, not whether the Treasury regulation represents the best interpretation of the statute, but whether it represents a reasonable one." Atlantic Mutual Ins. Co. v. Commissioner, 528 U.S. 382, 389 (1998).

[33] The first step in the Chevron analysis is satisfied here because section 2518 is silent on the question presented. That is, there is nothing in the language of the statute itself that indicates what constitutes "an undivided portion" of a property interest. The language of section 2518 does not specifically address decedent's attempt to disclaim a remainder interest in property while retaining the right to the use of and income from such property for life. Thus, contrary to the estate's assertion (Br. 9-10), the meaning of "undivided portion" is not "clear and unambiguous."

[34] As the district court noted (A. 112), the estate's proposed definition (under which it asserts that it can make a qualified disclaimer of any interest in property) erroneously assumes that section 2518(c) can be read in isolation. Because it cannot, the district court correctly held that the meaning of "an undivided portion" is "far from clear and unambiguous." (A. 112.) Section 2518(a) sets forth the general rule that IF a person makes a QUALIFIED DISCLAIMER with respect to any interest in property, then it is as if the interest had never been transferred to such person. Section 2518(c)(1) provides that when a person disclaims "an undivided portion of an interest" such a disclaimer must meet the requirements of section 2518(b) in order to be a qualified disclaimer. Section 2518(c) thus has to be read in the context of the entire statute.

[35] Moreover, as the parties' positions in this case highlight, an "undivided portion" could arguably be interpreted to be a horizontal division of the property (e.g., a division of the property into a life estate and a remainder) or a vertical division of the property (e.g., a division of the property into two 50-percent interests in the property). Because the phrase "undivided portion" is susceptible of more than one interpretation, and the statute is silent on the point, the statute is ambiguous. See Allen v. United States, 173 F.3d 533, 536 (4th Cir. 1999) (Congress did not see fit to define the term "properly allocable" in the context of personal interest, so in the absence of a statutory directive, the statute is manifestly ambiguous.) The Treasury, therefore, could properly issue an interpretive regulation to clarify what constitutes an "undivided portion" of a property interest.

[36] The second step under the Chevron analysis is to determine if the regulation is based on a permissible construction of the statute. As explained, a reviewing court is not free to set aside a regulation simply because it would have interpreted the statute in a different manner. Rather, the choice among reasonable interpretations is for the Treasury. National Muffler, 440 U.S. at 488. Under these principles, Treas. Reg. section 25.2518-3(b) represents a permissible and reasonable construction by the Treasury of the requirements of I.R.C. section 2518.

[37] Under section 2518, not all disclaimers of property interests will result in exclusion of property from a decedent's gross estate. The Treasury, through Treas. Reg. section 25.2518-3(b), recognized this distinction and reasonably applied it to conclude that a horizontal division of a property interest wherein the devisee disclaims only the remainder interest in property but retains a life estate in the property does not constitute a qualified disclaimer.

[38] As the district court observed (A. 112), limiting disclaimers to those that consist of a fraction or percentage of each and every substantial interest owned by the disclaimant is consistent with the express terms of section 2518(b)(3). Section 2518(b)(3) provides that a qualified disclaimer cannot be made with respect to an interest in property if the disclaimant has "accepted the interest or any of its benefits" prior to making the disclaimer. Treasury Regulation section 25.2518-2(d)(1) states that acts indicative of acceptance include using the property; accepting dividends, interest, or rents from the property; and directing others to act with respect to the property. In the disclaimer in this case, decedent specifically reserved to himself "the use and income" from the property. (A. 75.) Moreover, each interest in property that is separately created by the transferor generally is treated as a separate interest that can be disclaimed. Treasury Regulation section 25.2518-2(d)(1) provides that "acceptance of one interest in property will not, by itself, constitute an acceptance of any other SEPARATE INTERESTS CREATED BY THE TRANSFEROR and held by the disclaimant in the same property" (emphasis added). Under this regulation, therefore, disclaimer of an interest NOT created by the transferor is the equivalent of the acceptance of benefits. Cf. Treas. Reg. section 1.170A-7(a)(2)(i) (if the property in which such partial interest exists was divided in order to create such interest, the charitable deduction under section 170 will not be allowed). In the present case, the property interest John created in his will was a one- quarter interest in the residue of his estate. The estate admits (Br. 14) that decedent divided the property into an income and remainder interest. Under section 2518(b), to make a qualified disclaimer, decedent may not accept the interest bequeathed to him and divide this single interest horizontally into two interests, a life estate and a remainder interest, and then choose to disclaim the remainder interest. ³

[39] While section 2518(b)(3) prohibits decedent from disclaiming a horizontal division of his share of his brother's estate, section 2518(c)(1) permits decedent to disclaim a vertical portion of this interest. Under section 2518(c)(1), a disclaimer of an undivided portion of an interest in property is treated as a qualified disclaimer. For example, in the case of individual shares of stock, each share of stock has a complete and independent existence. Therefore, an interest in 100 shares of stock can be separated into 100 individual shares of stock allowing for a person to accept a certain number of shares of stock and disclaim the remaining shares of stock -- a vertical division. See Treas. Reg. sections 25.2518-3(a)(1)(ii), 25.2518-3(d) (Example 1). See also Treas. Reg. section 25.2518-3(d) (Example 20) (disclaimer of fractional share of residuary estate is qualified disclaimer).

[40] Moreover, interpreting the term "undivided portion" to include only vertical divisions is consistent with the use of that term as it is found in several other sections of the Internal Revenue Code. When identical words are used in different parts of the same act, they are intended to have the same meaning. Commissioner v. Keystone Consolidated Industries, 508 U.S. 152, 159 (1993); Flandreau Santee Sioux Tribe v. United States, 197 F.3d 949, 952 (8th Cir. 1999). The Internal Revenue Code must be given as great an internal symmetry and consistency as its words permit. Keystone Consolidated Industries, 508 U.S. at 159.

[41] The term "undivided portion" was first used in section 170(f)(3)(B)(ii) of the Code, as amended by section 201(a) of the Tax Reform Act of 1969, Pub. L. No. 91-172, 83 Stat. 487. Under section 170(f)(3)(B)(ii) a taxpayer is allowed a charitable contribution deduction for contribution of a partial interest in property if the interest is an "undivided portion" of the taxpayer's entire interest in the property. Treasury Regulation section 1.170A-7(b)(1) provides:

An undivided portion of a donor's entire interest in property

An undivided portion of a [decedent's/donor's] entire interest

[43] The Fifth Circuit has held, under I.R.C. section 2055(e)(2), that a party receiving a remainder interest under such a horizontal division did not receive an undivided portion of the decedent's entire interest in the property. In Estate of Brock v. Commissioner, 630 F.2d 368, 369-370 (5th Cir. 1980), the decedent granted a life estate in a salt royalty to his wife and the remainder interest in the royalty to a church. The decedent's wife and the church received different interests, but each was a portion of the salt royalty. Relying on Treas. Reg. section 20.2055(e)(2)(i), the court stated "[b]ecause the decedent granted certain rights in the royalty to his wife for her life, and the remainder rights to the church, it cannot be contended seriously that the church received an undivided interest in the property." 630 F.2d at 369 n. 1.

[44] The determination that the disclaimer of a remainder interest while retaining a life estate is not a "qualified disclaimer" also is consistent with I.R.C. section 2036(a). Under section 2036(a), where a person makes an inter vivos transfer of property subject to a retained life estate, the property generally is included in his gross estate for federal estate tax purposes. Ever since the first modern federal estate tax was adopted in 1916, Congress has recognized that the estate tax would be ineffective unless it also reaches property that a decedent gives away during his life by a transfer of an essentially testamentary character, viz., a transfer that reserves to him a significant interest in, or control over, the property until he dies. See United States v. Estate of Grace, 395 U.S. 316, 320 (1969); Helvering v. Hallock, 309 U.S. 106, 114 (1940). Among the most common of the inter vivos transfers "resorted to, as a substitute for a will, in making dispositions of property operative at death," Hallock, 309 U.S. at 114, is one where a donor makes a gift of property with a reserved life estate. A life estate in income-producing property is normally a "most valuable property right," which as a practical matter postpones the donee's enjoyment of the asset until the donor dies. See Commissioner v. Estate of Church, 335 U.S. 632, 644-645 (1949). Section 2036(a) addresses such a transaction. It brings within a decedent's gross estate the value of --

all property to the extent of any interest therein of which the

[45] Under Treasury Regulation section 25.2518-3(b), the provisions of I.R.C. sections 2518 and 2036 are harmonized. The requirement that the disclaimant disclaim an undivided portion of the disclaimant's separate interest in property prevents the use of a disclaimer under section 2518 to retain a life estate in property in which the disclaimant held a fee simple. That is, a qualified disclaimer does not allow the disclaimant to change the nature of the interest received. For example, decedent was bequeathed a one-fourth interest in the residue of his brother's estate. Under section 2518(a) decedent could disclaim this interest and remove it from his taxable estate. A disclaimer of the entire interest or a fraction or percentage of this interest, a vertical division, in the residue would be consistent with treating the transfer of the disclaimed interest as if it had not taken place. However, in a horizontal division such as in the instant case, decedent accepted the property interest, divided the interest into a life estate and a remainder interest, and then disclaimed the remainder interest. The regulation makes clear, however, that if someone is bequeathed the entire interest in property that person cannot, by disclaimer, enjoy the income for life and avoid the estate tax. This regulation is entirely consistent with Congress' intent under section 2036 to tax transfers in which life estates are reserved.

[46] As can be seen from the above discussion, the estate's argument (Br. 13-15) that Treas. Reg. section 25.2518-3(b) is "irrational" and has "no basis in the statute" is wide of the mark. It is not unreasonable for the Treasury to determine that where, as here, a person disclaims a remainder interest in property while retaining a life estate in that same property, a qualified disclaimer has not been made. Moreover, such a determination is certainly not inconsistent with the statute. Accordingly, because the regulation is "based on a permissible construction of the statute" (Chevron, 467 U.S. at 843), this Court should affirm the decision of the district court that Treasury Regulation section 25.2518-3(b) is valid.

D. THE ESTATE'S REMAINING ARGUMENTS ARE WITHOUT MERIT

[47] The estate argues (Br. 14-15) that "Edward's action in dividing his property into an income and remainder interest is analogous to the situation in which a joint tenant with the rights of survivorship" is allowed to disclaim his or her survivorship share. The estate's argument is without merit as it ignores critical differences between those property interests. Joint tenants' interests are "undivided interests" held under the same title by two or more persons. See Black's Law Dictionary p. 1528 (7th edition). A joint tenant's interests is created wholly apart from and prior to the disclaimer. A joint tenant's survivorship interest is created when one of the cotenants dies, and it is a separate interest that can be disclaimed. See Estate of McDonald v. Commissioner, 853 F.2d 1494 (8th Cir. 1988). It is only this survivorship interest that can be disclaimed; that is, only the property interest that belonged to the dead joint tenant can be disclaimed. There is no post-death carving out of property interests. By contrast, decedent here carved out a life estate and remainder interest after his brother's death.

[48] The estate further asserts (Br. 15) that allowance of disclaimers of a fraction or percentage of property interest (a vertical division) under Treas. Reg. section 25.2518-3(b), but not the disclaimer of a horizontal division, is against public policy. It makes sense, however, to allow a qualified disclaimer of an undivided fraction or percentage, but not allow a qualified disclaimer of a remainder, in which the disclaimant retains the lifetime rights over the property corpus. In the vertical division, the disclaimant has entirely divorced himself from the portion of the property disclaimed. No income, use of, or control over, is kept over that portion of the property -- it is completely gone. By contrast, where one retains the right to the income, use of, or control over such property for life, the current benefits in the whole of the property continue to inure to the disclaimant. The reason for the rule against allowing only the remainder to be disclaimed is exactly the same as the reason discussed above (pp. 26-28) under section 2036 -- the purported disclaimer is simply a testamentary substitute.

[49] Finally, the estate's argument (Br. 17) that the "notable legal controversy" in this case precludes summary judgment lacks merit. Where the unresolved issues are primarily legal, rather than factual, summary judgment is particularly appropriate. Bell Lumber & Pole Co. v. United States Fire Ins. Co., 60 F.3d 437, 441 (8th Cir. 1995); Mansker v. TMG Life Ins. Co., 54 F.3d 1322, 1326 (8th Cir. 1995). The validity of a Treasury Regulation involves a purely legal question. The estate's desire for "a trial to debate the law" (Br. 17) cannot preclude summary judgment.

CONCLUSION

[50] For the foregoing reasons, the judgment of the district court is correct and should be affirmed.

Respectfully Submitted,

[51] Pursuant to Rule 32(a)(7)(C) of the Federal Rules of Appellate Procedure and Rule 28A(c) of the Eighth Circuit Rules of Appellate Procedure, I certify that this brief was prepared with WordPerfect 8.0, uses Times New Roman 14 point typeface, and contains 7,321 words. Pursuant to Eighth Circuit Rule 28A(d), I further certify that the computer diskettes provided to the Court and to counsel for the appellants have been scanned for viruses using a commercial virus scanning program, which reports that the diskettes are virus-free.

REGINA S. MORIARTY

[52] It is hereby certified that service of the foregoing brief has been made on counsel for the appellants on this 30th day of August, 2001, by mailing two copies and one computer readable disk copy, in an envelope properly addressed as follows:

Robert N. Downer, Esquire

² Prior to the enactment of I.R.C. section 2518 by the Tax Reform Act of 1976, Pub. L. No. 94-455, section 2009(b)(1), 90 Stat. 1520, the federal tax consequences of disclaimers largely depended on local law. Section 2518 was enacted to provide definitive rules concerning disclaimers and thereby to achieve national uniformity. H.R. Rep. No. 94-1380 at 66 (1976-3 C.B. (Vol. 3) 735, 800). Although section 2518 is a gift tax provision, I.R.C. section 2046 makes its rules applicable for estate tax purposes as well.

³ If this Court were to determine that Treas. Reg. section 25.2518-3(b) is invalid, the case would need to be remanded to the district court for factual findings to determine whether decedent accepted the property interest or any of its benefits (I.R.C. section 2518(b)(3)) when he divided the property and disclaimed only a remainder interest.