## Facts

- John McDonald, a North Dakota resident, died testate on January 16, 1981, survived by his wife (Gladys), four children, and three grandchildren.
- John’s will left most property to Gladys; John and Gladys also held several farm parcels in joint tenancy with right of survivorship created before 1977.
- On September 23, 1981, Gladys executed a disclaimer of (1) certain farmland passing to her under the will and (2) most of her survivorship interests in the jointly held farmland, causing the disclaimed property to pass in equal shares to three children.
- The estate timely filed a federal estate tax return electing special-use valuation for farm property under I.R.C. § 2032A and filed an accompanying recapture-liability agreement listing Gladys as the only person with an interest in the elected property.
- The estate later filed a timely amended return with an amended § 2032A agreement signed by the three children and three grandchildren, but not by Gladys.
- The IRS (1) disallowed § 2032A special-use valuation for certain property due to alleged defects in the required recapture agreement signatures and (2) treated Gladys’s disclaimer of survivorship interests as a taxable gift because it was not made within a “reasonable time” under former Treas. Reg. § 25.2511-1(c).
- The Tax Court sustained the IRS on both issues; Gladys and the estate appealed.

## Issues

1. Whether the estate satisfied I.R.C. § 2032A’s election requirements, including execution of a recapture-liability agreement by all required persons, and whether the absence of Gladys’s signature was fatal after her disclaimer.
2. Whether Gladys’s 1981 disclaimer of survivorship interests in a pre-1977 joint tenancy was governed by the “qualified disclaimer” regime of I.R.C. § 2518 (9-month rule) or by former Treas. Reg. § 25.2511-1(c) (reasonable-time rule measured from the transfer creating the interest), and whether the disclaimer was a taxable gift.

## Decision

- The court affirmed in part, reversed in part, and remanded.
- Gift-tax issue (Gladys): affirmed; the disclaimer was a taxable gift.
- § 2032A issue (estate): reversed in part and remanded; the Tax Court erred by requiring Gladys to sign the § 2032A agreement after she had disclaimed her interest, and further proceedings were needed to determine compliance under the correct standard.

## Legal Principles

- For a joint tenancy interest created before the effective date of I.R.C. § 2518, the relevant “transfer” for disclaimer timing occurs at the creation of the joint tenancy, not at the death of a cotenant.
- A disclaimer of such a pre-1977 joint tenancy interest is tested under former Treas. Reg. § 25.2511-1(c); unless made within a reasonable time after knowledge of the transfer creating the interest, it is treated as a taxable gift.
- I.R.C. § 2032A special-use valuation requires a written agreement by the persons required by statute and regulations (generally, the qualified heirs with interests in the property) consenting to personal liability for recapture tax.
- A surviving spouse who has effectively disclaimed the relevant interest is not a “qualified heir” required to execute the § 2032A recapture agreement for that disclaimed property.
- Defects in the original § 2032A agreement may be curable through a timely amended filing, depending on whether all actual required signatories ultimately execute the agreement within the allowable period.

## Conclusion

The Eighth Circuit held that Gladys’s late disclaimer of survivorship interests arising from a pre-1977 joint tenancy constituted a taxable gift because the relevant transfer occurred when the joint tenancy was created, making the “qualified disclaimer” rules inapplicable. On the estate tax issue, the court rejected the view that a spouse who disclaimed her interest still had to sign the § 2032A recapture agreement and remanded to determine whether the corrected, timely amended agreement satisfied § 2032A’s execution requirements.


McDonald v. Commissioner, 853 F.2d 1494 (8th Cir. 1988)