Disclaimers and federal tax liens' effect on inheritances

The Service argued that the federal tax liens attached to Drye's interest in the estate on the date of the Decedent's death.40 The Service maintained that Drye's right to inherit was a "right to property" under Code section 6321, that the liens automatically attached to that right when the Decedent died, and that Drye's subsequent state law disclaimer was ineffective to invalidate the federal tax liens.41

The Eighth Circuit agreed with the government and affirmed the District Court's ruling.42 The main issue before the Eighth Circuit was whether Drye's right to inherit the Decedent's estate was property or a right to property to which a federal tax lien could attach under section 6321.43 The Eighth Circuit also had to decide whether it was bound by Arkansas law governing disclaimers or by federal law governing the attachment of liens.44

The Eighth Circuit affirmed the District Court's ruling by holding that "state law determines whether a given set of circumstances creates a right or interest; federal law then dictates whether that right or interest constitutes 'property' or the `right to property' under 6321."45 The Eighth Circuit mentioned the fact that, although section 6321 does not define property or right to property, numerous other Circuit Court decisions have defined these terms as state law interests that have pecuniary value and are transferable.46

Next, the Eighth Circuit examined Arkansas law to decipher the nature of Drye's right to inherit his mother's estate. The Eighth Circuit held that under Arkansas law the right to inherit has pecuniary value, is transferable, and vests at the time of death of the intestate.47 Section 28-9-203(c) of the Arkansas Code states:

Real estate passes immediately to the heirs upon the death of the intestate, subject to the right of the personal representative under the probate code to mortgage, lease, exchange, sell, or possess it for the payment of claims or legacies, the preservation or protection of the assets of the estate, the distribution of the estate, or any other purpose in the best interest of the estate. However, personalty will pass to the personal representative, if any, for distribution to the heirs unless otherwise disposed of as permitted by the probate code.48

Additionally, the Eighth Circuit held that under the Arkansas disclaimer statute, an heir may disclaim an intestate right to an inheritable estate within nine months after the decedent's death.49 Sections 28-2108(aX), (3) of the Arkansas Code provide that if an heir makes such a disclaimer, the estate "devolves as if the disclaimant had predeceased the decedent" and that the disclaimer "relates back for all purposes to the date of death of the decedent."50 The Eighth Circuit concluded that the Arkansas Probate Code's disclaimer provision is a "state law consequence[ ] of Drye's right to his mother's estate" and "is `of no concern to the operation of the federal tax law."'51 The Eighth Circuit held that once it identified that Drye had a state law right to inherit, its analysis of Drye's rights under state law ended.52 Because Drye's right to inherit had pecuniary value and was transferable under Arkansas law, it was considered property or a right to property under section 6321.53 Finally, the Eighth Circuit held that the Service's pre-existing federal tax liens attached to Drye's right at the time of the Decedent's death.54