Drye v. United States

Background

When Irma Drye died intestate, her son Rohn Drye was sole heir to an estate worth about $233,000. At his mother’s death Drye was insolvent and owed the Government about $325,000, and the IRS already had filed tax liens against him. Drye was appointed administrator, then months later filed a written disclaimer under Arkansas law, causing the inheritance to pass to his daughter, who used the money to fund the Drye Family 1995 Trust. The Trust is spendthrift and the trustee has discretion to make distributions. The IRS filed a notice of federal tax lien and levied the Trust; the Trust sued and lost in the District Court and the Eighth Circuit.

Reasoning

The Court asked whether Drye’s state-law interest as heir counted as “property” or a “right to property” under the federal tax-lien statute despite his later state-law disclaimer. It explained that courts first look to state law to identify what rights a taxpayer had, and then apply federal law to decide whether those rights are property for collection purposes. The Court found that Arkansas law gave Drye an unqualified ability either to receive the estate or to channel it to his daughter, and that degree of control made the interest subject to federal tax liens, so the disclaimer did not defeat the liens.

Real world impact

The decision means that heirs who inherit while owing federal taxes cannot necessarily use a state-law disclaimer to keep the IRS from reaching the inheritance. Money that passes into a trust after a disclaimer can be reached if the taxpayer had sufficient rights or control, including when the Government treats the trust as the taxpayer’s nominee. The ruling reinforces that federal tax collection rules, not state disclaimer rules alone, determine whether interests are reachable by the IRS. The judgment affirms the lower courts and resolves the dispute in favor of the Government.