## Facts

- In 1953, Pearl M. Kennedy’s husband transferred the family farm into an Illinois joint tenancy with Pearl.
- Under Illinois law, joint tenancy gave each spouse an immediate, irrevocable one-half undivided interest and a present right of survivorship in the other half.
- Either spouse could partition the property at any time, which would terminate the right of survivorship.
- The husband died in 1978; in 1979, Pearl executed a disclaimer of the interest she would take by survivorship.
- Illinois law treated the disclaimed survivorship interest as passing to the couple’s daughter, Marsha.
- The IRS determined the 1979 disclaimer was not timely under the pre-1977 disclaimer regime and treated it as a taxable gift from Pearl to Marsha; the Tax Court upheld the deficiency.

## Issues

1. Whether the “transfer” for purposes of the pre-1977 disclaimer timing rule occurred in 1953 when the joint tenancy (including survivorship rights) was created, or in 1978 at the husband’s death when survivorship would have ripened.
2. Whether Pearl’s 1979 disclaimer was timely enough to avoid gift-tax treatment, or instead constituted a taxable gift to her daughter.

## Decision

- The Seventh Circuit affirmed the Tax Court.
- The court held that Pearl acquired a present property interest in 1953 that included survivorship rights as part of the joint-tenancy bundle of rights under Illinois law.
- Applying Treasury Regulation § 25.2511-1(c) (1958) as construed in *Jewett v. Commissioner*, the court treated the relevant “transfer” as occurring when the interest was created (1953), not when it became possessory (1978).
- Because Pearl waited until 1979 to disclaim, the disclaimer was not made within a reasonable time after knowledge of the 1953 transfer.
- The 1979 disclaimer therefore was treated as a taxable gift from Pearl to Marsha under the federal gift-tax provisions.

## Legal Principles

- For pre-1977 transfers governed by Treas. Reg. § 25.2511-1(c), the time to make a non-taxable disclaimer begins when the property interest is created, even if enjoyment depends on a future contingency.
- State property law determines the nature of the interest received; under Illinois joint tenancy, survivorship is a present incident of ownership, not merely an expectancy arising at death.
- A disclaimer made after the “reasonable time” window is treated as a taxable transfer by the disclaimant to the eventual recipient for federal gift-tax purposes.
- The post-1976 qualified-disclaimer statute (26 U.S.C. § 2518) does not govern where the relevant transfer is treated as having occurred before its effective reach.

## Conclusion

The court held that the survivorship component of an Illinois joint tenancy is part of the present interest transferred when the tenancy is created, so a disclaimer made decades later is untimely and results in a taxable gift to the person who takes the disclaimed interest.


Kennedy v. Comm’r, 804 F.2d 1332 (7th Cir. 1986)