Rev. Rul. 83-26

1983-1 C.B. 234, 1983-6 I.R.B. 7.

                       Internal Revenue Service
                                 Revenue Ruling

              QUALIFIED DISCLAIMER;  QUALIFIED TERMINABLE INTEREST

                          Published: February 7, 1983

SECTION 2518. - -DISCLAIMERS

(Also Section 2056; 26 CFR 20.2056(b)-1.)

  Qualified disclaimer;  qualified terminable interest.  A surviving spouse's disclaimer of property in accord with the requirements of section 2518 of the Code is an effective disclaimer even though a section 2056(b)(7) election has been made with respect to the property by the executor of the estate.

ISSUE

  For purposes of section 2518 of the Internal Revenue Code, can a surviving spouse make a "qualified disclaimer" of an interest in property created by a decedent if the executor of the estate elected to treat the property as qualified terminable interest property under section 2056(b)(7), added by section 403(d) of the Economic Recovery Tax Act of 1981, 1981-2 C.B. 256, 325.

FACTS

  The decedent, D, died in February 1982.  D's will, executed in January 1982, provided that 800x dollars was to be held in trust.  All of the income was to be paid annually to D's spouse, A, during A's life.  Upon A's death, the trust property was to be distributed to D's children.

  The federal estate tax return was filed for D's estate in August 1982.  On the return, the executor elected to treat the 800x dollars as qualified terminable interest property under section 2056(b)(7) of the Code.

  In September 1982, during the nine-month period after D's death, A renounced the life interest.  Under applicable state law, as a result of the renunciation, the 800x dollars passed directly to D's children.

  The executor contended that the 800x dollars qualified for the marital deduction because the election foreclosed the spouse's right to make a qualified disclaimer;  therefore, A's renunciation was a disposition of the qualified terminable interest property.

LAW AND ANALYSIS

  Under section 2056(a) of the Code, the marital deduction is allowed only for property passing from the decedent to the surviving spouse.  Section 2056(b)(7), effective for estates of decedents dying after December 31, 1981, provides that, in the case of qualified terminable interest property, if an election is made by the executor such property will be treated as passing to the surviving spouse and no part of such property will be treated as passing to any other person, for purposes of section 2056(a).  Therefore, the statutory election gives the executor an option to treat property subject to the surviving spouse's interest as passing only to the surviving spouse.

  Under section 2056(b)(7)(B) of the Code, the term "qualified terminable interest" means property:  1) which passes from the decedent, 2) in which the surviving spouse has a qualifying interest for life, and 3) to which an election applies.

  Under section 2518 of the Code, if a person makes a qualified disclaimer with respect to any interest in property, the estate and gift tax laws apply with respect to such interest as if the interest had never been transferred to such person.  Thus, when a decedent bequeaths an interest to a surviving spouse and the surviving spouse makes a "qualified disclaimer" of the interest, the interest is deemed never to have passed to the surviving spouse.

  In this situation, A's renunciation is a "qualified disclaimer" and the lifetime income interest is deemed never to have passed to A.  Although the executor's election under section 2056(b)(7) was made before A's renunciation, the election is not effective because A is treated as never having received a qualifying lifetime income interest, for estate tax purposes.  Therefore, the marital deduction is not allowable, because an election under section 2056(b)(7) only applies if the surviving spouse has received a qualifying interest.  The 800x dollars is deemed to have passed directly from D to the children (rather than from D to A and, then, from A to the children).  However, if A's renunciation had not been a "qualified disclaimer" the executor's election would have been effective and the 800x dollars would have been regarded as qualified terminable interest property.

HOLDING

  For purposes of section 2518 of the Code, a surviving spouse can make a  "qualified disclaimer" of an interest in property created by a decedent if the executor of the estate elected to treat the property as qualified terminable interest property under section 2056(b)(7).  In such case, the marital deduction is not allowable.

Rev. Rul. 83-26, 1983-1 C.B. 234, 1983-6 I.R.B. 7.