George F. Jewett, Jr., and Lucille M. Jewett v. Commissioner of Internal Revenue

638 F.2d 93 80-2 USTC P 13,384 George F. JEWETT, Jr., and Lucille M. Jewett, Petitioners-Appellants, v. COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee. No. 78-3621. United States Court of Appeals, Ninth Circuit. Argued and Submitted Nov. 12, 1980. Decided Dec. 9, 1980. Rehearing Denied Feb. 18, 1981. Robert J. Richards, Jr., Boston, Mass., for petitioners-appellants. Jonathan S. Cohen, Tax Div. Dept. of Justice, Washington, D. C., argued for respondent-appellee; Suzanne G. Duvall, Washington, D. C., on brief. On Petition to Review a Decision of The Tax Court of the United States. Before BROWNING and MERRILL, Circuit Judges, and HARRIS, * District Judge. MERRILL, Circuit Judge: 1 This is an appeal from a decision of the Tax Court holding that appellant George F. Jewett, Jr., made taxable gifts when he executed disclaimers of his remainder interest in a testamentary trust. 1 We affirm. 2 The facts are not in dispute. Appellant's grandmother, Margaret Jewett, a resident of Massachusetts, died in 1939, and by her will created a trust with income to go to her husband, James, during his lifetime, and thereafter to her son, George, and his wife, Mary, during their respective…

This is an appeal from a decision of the Tax Court holding that appellant George F. Jewett, Jr., made taxable gifts when he executed disclaimers of his remainder interest in a testamentary trust. 1 We affirm.

The facts are not in dispute. Appellant’s grandmother, Margaret Jewett, a resident of Massachusetts, died in 1939, and by her will created a trust with income to go to her husband, James, during his lifetime, and thereafter to her son, George, and his wife, Mary, during their respective lifetimes. Mary is now the sole surviving life tenant. When she dies, Margaret Jewett’s will provides for distribution of the trust corpus in equal shares to the children of George and Mary then living. Appellant George F. Jewett, Jr., is one of those children. In 1972, he executed two disclaimers, the first for 95 percent and a later one for the remaining 5 percent of his interest in the trust remainder. The parties have stipulated that appellant thus had no share in the trust remainder after December 14, 1972.

The issue in this case is whether these disclaimers are subject to gift tax under applicable law. 26 U.S.C. § 2501 provides in part: “A tax * * * is hereby imposed * * * on the…

dissenting:

I respectfully dissent from the decision and opinion of the Court in this matter. In my view it is particularly important in matters of taxation that established precedent be followed, unless the Congress acts to change the rule as established or the rule be without substantial rational justification or foundation.

Were this a case of first impression I might well join with the majority. However, Keinath v. C. I. R., 480 F.2d 57 (8th Cir. 1973), followed by the Eighth Circuit en bane in Cottrell v. Commissioner, 628 F.2d 1127 (1980), has been the only precedent from a Court of Appeals since its decision in 1973. Numerous tax practitioners have undoubtedly relied on this opinion in advising as to the tax consequences of such acts as are involved in the instant case, and justifiably so.

The Congress, in the Tax Reform Act of 1976, acted to override the Keinath rule, but only prospectively. The effect of the decision of the majority is to give to the 1976 Amendments the retrospective effect which the Congress expressly rejected. An unnecessary split between holdings of the Circuit Courts of Appeal is thus established. I would follow the rule of Keinath and reverse.