Part I. Rulings and Decisions Under the Internal Revenue Code of 1986

group-term life insurance coverage in a variety of change in status situations. ⁴

These final regulations, which replace the 1997 temporary regulations, clarify the circumstances under which a cafeteria plan may permit an employee to revoke an existing election with respect to accident or health coverage, or group-term life insurance coverage, and make a new election during a period of coverage.

Explanation of Provisions

A. Summary .

These regulations clarify the circumstances under which a cafeteria plan may permit an employee to change his or her cafeteria plan election with respect to accident or health coverage or group-term life insurance coverage during the plan year. The regulations generally follow the existing temporary regulations, and include a variety of examples illustrating how the rules apply in specific situations.

The final regulations include two principal changes that have been made in response to public comments. First, the regulations differ from the 1997 regulations with respect to change in status events resulting from a change in employment. Commentators requested a loosening of the rules regarding when a cafeteria plan election can be changed. In response, the final rules incorporate a more flexible rule under which any change in the employment status of the employee (or a spouse or dependent of the employee) that affects that individual’s eligibility under a cafeteria plan or qualified benefits plan constitutes a change in status for purposes of permitting a mid-year election change. Second, in the event of a change in an employee’s marital status or the employment status of the employee’s spouse or dependent, the final regulations permit the employee to elect either to increase group-term life insurance coverage or to decrease group

4 62 FR 60196 (November 7, 1997) and 62 FR 60165 (November 7, 1997), respectively. IRS Announcement 98–105 (1998–49 I.R.B. 21 (November 23, 1998)) states that the Service will amend the effective date of those proposed and temporary regulations so that they will not be effective before plan years beginning at least 120 days after further guidance is issued.

Section 125.—Cafeteria Plans

26 CFR 1.125–4: Permitted election changes.

T.D. 8878

DEPARTMENT OF THE TREASURY Internal Revenue Service 26 CFR Part 1

Tax Treatment of Cafeteria Plans

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations.

SUMMARY: This document contains final regulations relating to section 125 cafeteria plans. The final regulations clarify the circumstances under which a section 125 cafeteria plan election may be changed. The final regulations permit an employer to allow a section 125 cafeteria plan participant to revoke an existing election and make a new election during a period of coverage for accident or health coverage or group-term life insurance coverage.

DATES: Effective Date : These regulations are effective March 23, 2000.

Applicability Date : These regulations are applicable for cafeteria plan years beginning on or after January 1, 2001. See the Scope of Regulations and Effective Date portion of this preamble.

FOR FURTHER INFORMATION CONTACT: Janet A. Laufer or Christine L. Keller at (202) 622-6080 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

This document contains amendments to the Income Tax Regulations (26 CFR part

1. under section 125. Section 125 generally provides that an employee in a cafeteria plan will not have an amount included in gross income solely because the employee may choose among two or more benefits consisting of cash and “qualified benefits.” A qualified benefit generally is

any benefit that is excludable from gross income under an express provision of the Internal Revenue Code, including coverage under an employer-provided accident or health plan under sections 105 and 106, group-term life insurance under section 79, elective contributions under a qualified cash or deferred arrangement within the meaning of section 401(k), dependent care assistance under section 129, and adoption assistance under section 137. ¹

Qualified benefits can be provided under a cafeteria plan either through insured arrangements or arrangements that are not insured.

In 1984 and 1989, proposed regulations were published relating to the administration of cafeteria plans. ² In general, the 1984 and 1989 proposed regulations require that for benefits to be provided on a pre-tax basis under section 125, an employee may make changes during a plan year only in certain circumstances. ³

Specifically, Q&A-8 of §1.125–1 and Q&A-6(b), (c), and (d) of §1.125–2 permit participants to make benefit election changes during a plan year pursuant to changes in cost or coverage, changes in family status, and separation from service.

In 1997, temporary and proposed regulations were issued addressing the standards under which a cafeteria plan may permit a participant to change his or her group health coverage election during a period of coverage to conform with the special enrollment rights under section 9801(f) (added to the Internal Revenue Code by the Health Insurance Portability and Accountability Act of 1996 (HIPAA)) and to change his or her group health or

1 The following are not qualified benefits: products advertised, marketed, or offered as long-term care insurance; medical savings accounts under section 106(b); qualified scholarships under section 117; educational assistance programs under section 127; and fringe benefits under section 132.

2 49 FR 19321 (May 7, 1984) and 54 FR 9460 (March 7, 1989), respectively.

3 Those proposed regulations contain special rules with respect to flexible spending arrangements. A flexible spending arrangement (FSA) is defined in section 106(c)(2). Under section 106(c)(2), an FSA is generally a benefit program under which the maximum reimbursement reasonably available for coverage is less than 500% of the value of the coverage.

2000–15 I.R.B. 857 April 10, 2000

tency requirement. In response to comments, the final regulations expand and clarify the consistency requirement with respect to change in status events for group-term life insurance. Under the 1997 regulations, in the case of a commencement of employment, marriage, birth, adoption, or placement for adoption, an employee could elect to increase (but not decrease) group-term life insurance coverage. The 1997 regulations also permitted an employee to elect to decrease (but not to increase) group-term life insurance coverage in the case of divorce, legal separation, annulment, or death of a spouse or dependent. Commentators suggested that these rules were too restrictive. For example, in the case of divorce, an employee may reasonably seek to increase coverage because the employee may become the sole wage-earner for the family unit as a result of the divorce. Accordingly, the final regulations provide flexibility by stating that, in the event of a change in an employee’s marital status or the employment status of the employee’s spouse or dependent, an employee may elect either to increase groupterm life insurance coverage or to decrease group-term life insurance coverage. Also, in response to comments, a similar rule has been added that applies to election changes made with respect to disability income coverage (i.e., accident or health coverage that is neither for medical care as defined under section 213(d) nor for payments described in section 105(c)).

D. Other Changes .

Some commentators requested that the regulations prescribe a period of time by which election changes, as a result of a change in status, should be made. Consistent with the approach taken in the 1997 regulations and in the interest of providing employers and plan administrators flexibility, the final regulations do not prescribe such a period. However, nothing in the final regulations would prevent a cafeteria plan by its terms from requiring that any election change (other than those made in connection with rights for which there are specific minimum election periods, such as under section 9801 (as added by HIPAA) and section 4980B (relating to COBRA coverage)), must be made within a specified period after a

term life insurance coverage. A similar rule applies with respect to disability income plans.

These final regulations were developed as part of an integrated package with proposed regulations REG–117162–99, page 871. Those proposed regulations provide guidance on election changes on account of changes in status with respect to dependent care assistance and adoption assistance and provide guidance on election changes on account of changes in cost or coverage with respect to dependent care assistance, adoption assistance, accident or health coverage, and group-term life insurance coverage. The integrated package of final and proposed regulations is intended to provide clear standards for plan administration and for administration of the tax law. The standards are designed to accommodate the most common types of events of independent significance that do not occur on a regular, periodic basis and that are likely to affect an employee’s decisions with respect to qualified benefits coverage.

B. Changes in Status .

Commentators on the 1997 temporary and proposed regulations requested that the description of changes in status be expanded to include work-related changes of an employee, the employee’s spouse, or the employee’s dependent in addition to termination or commencement of employment or change in worksite. In response to these comments, the description of changes in status has been broadened to include a strike or lockout, and a commencement of or return from an unpaid leave of absence. In addition, the final rules incorporate a more flexible rule for other change in employment status events. Specifically, if there is a change in the employment status of the employee (or a spouse or dependent of the employee) that affects that individual’s eligibility under a cafeteria plan or qualified benefits plan, then that change constitutes a change in status. For example, if an employee switches from salaried to hourlypaid status, resulting in the employee ceasing to be eligible for coverage under the plan, then that change constitutes a change in status.

Some commentators expressed concern that the 1997 temporary and proposed regulations did not permit an employee to

make an election change to cover additional individuals under an accident or health plan when an employer changed its policy (e.g., to permit coverage for a parent or for a domestic partner pursuant to local law requirements). Under the 1997 temporary and proposed regulations, a change in status includes an event that causes an employee’s dependent to satisfy or cease to satisfy the eligibility requirements for coverage under a plan. Thus, if an individual who is a dependent of an employee becomes eligible for coverage under the employer’s health plan as a result of an amendment made to the plan during the year, that is a change in status event and, accordingly, the cafeteria plan may permit an election change by the employee to cover the individual. These final regulations retain the rule from the 1997 temporary and proposed regulations.

These final regulations do not address when a bona fide termination of employment occurs. However, these regulations retain the example ( Example 8 under paragraph (c)(4) of these final regulations) from the 1997 temporary and proposed regulations addressing the situation in which an employee terminates and resumes employment within 30 days. The effect of this example is to provide a practical safe harbor that generally may be applied by cafeteria plans without regard to other facts and circumstances. Under this example, if an employee terminates and resumes employment within 30 days and the cafeteria plan provides that the employee’s election is automatically reinstated, the employer is not required to determine whether a bona fide change in status has occurred with respect to termination of employment. Conversely, the cafeteria plan may permit an employee who resumes employment more than 30 days following termination to be automatically reinstated to the prior election or to make a new election. ⁵

C. Consistency Rule .

As under the 1997 temporary and proposed regulations, the final regulations require that an election change as a result of a change in status also satisfy a consis

5 Alternatively, the cafeteria plan may prohibit an employee from participating in the cafeteria plan for that plan year upon reemployment.

April 10, 2000 858 2000–15 I.R.B.

change in status event. The consistency rule in the final regulations does require that an election change made pursuant to a change in status be “on account of” a gain or loss of eligibility for coverage. This requirement follows the “on account of” language contained in the 1989 proposed regulations under §1.125–2, Q&A6(c), and is intended to add a general condition that the election change not be made so long after the event permitting the election change that the election is not on account of the event.

In accordance with comments, examples in the regulations clarify that if, in accordance with special enrollment rights provided by HIPAA, an employee, spouse, or new dependent is entitled to enroll in a group health plan, a cafeteria plan may permit the employee to elect to enroll pre-existing dependents in the underlying group health plan. ⁶ Likewise, the examples clarify that if, in accordance with the change in status rules relating to a new spouse or dependent, an employee is entitled to elect family coverage under a group health plan, then other family members are permitted to become covered under the family coverage as a result of the election change. ⁷

In response to comments, the final regulations also clarify that, in the event of a loss of Medicare or Medicaid entitlement by an employee or by the employee’s spouse or dependent, a cafeteria plan may permit the employee to add health coverage under the employer’s accident or health plan (and may permit cancellation or reduction in coverage if an employee, spouse, or dependent who is enrolled in an accident or health plan becomes entitled to Medicare or Medicaid).

Scope of Regulations and Effective Date

These final regulations address all of the changes in status for which a cafeteria

6 No inference is intended from these or any other examples in the final regulations concerning the interpretation of special enrollment rights under section 9801(f). 7 Provisions in paragraph (b) of the final regulation allowing election changes in connection with special enrollment under section 9801(f) may overlap the provisions in paragraphs (c) through (e) of the final regulations permitting election changes in other circumstances. Thus, no inference is intended that an election change permitted under paragraphs (c) through (e) is not also permitted under paragraph (b).

plan may permit election changes with respect to an accident or health plan or group-term life insurance plan. However, future guidance under the cost or coverage change provision (reserved at paragraph (f) of these final regulations and included in paragraph (f) of the proposed regulations [REG–117162–99], on page 871), rather than the change in status rules, would determine whether a cafeteria plan may permit affected employees to elect a new HMO option that is made available during a period of coverage. Similarly, election changes may be made under the special rules relating to changes in elections by employees taking leave under the Family and Medical Leave Act of 1993 (Public Law 103–3) ⁸ (as referenced at paragraph (g) of these final regulations).

Finally, these regulations do not override other cafeteria plan requirements. For example, although an employee’s termination of employment is a change in status, some election changes made with respect to coverage under a health FSA on account of the termination of employment would fail to be consistent with the requirement that the operation of such arrangements exhibit the risk-shifting and risk-distribution characteristics of insurance under §1.125–1, Q&A-17 and §1.125–2, Q&A-7 of the proposed regulations. Thus, a cafeteria plan could not permit individuals terminating employment to change their health FSA elections to match the amount of premiums paid prior to termination (i.e., stop paying premiums), and continue to receive health FSA reimbursements with respect to the remainder of the period of coverage.

These regulations are applicable for cafeteria plan years beginning on or after January 1, 2001. Until the beginning of the first plan year beginning on or after January 1, 2001, taxpayers may rely on these regulations. In addition, until the beginning of the first plan year beginning on or after January 1, 2001, taxpayers may continue to rely on the change in status rules in the 1997 regulations, as well as the change in family status rules in the pre-1997 proposed regulations.

Pursuant to section 7805(e), the 1997 temporary regulations §1.125–4T will expire within three years of the date of is

8 See ‘1.125–3, published as a proposed rule at 60 FR 66229 (December 21, 1995).

suance (November 7, 2000). This Treasury decision amends the 1997 temporary regulations to add this expiration in the text of the regulations (§1.125–4T(l).

Special Analyses

It has been determined that this Treasury decision is not a significant regulatory action as defined in Executive Order 12866. Therefore, a regulatory assessment is not required. It also has been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations, and because the regulation does not impose a collection of information on small entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not apply. Pursuant to section 7805(f) of the Internal Revenue Code, these regulations will be submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business.

Drafting Information

The principal authors of these regulations are Janet A. Laufer and Christine L. Keller, Office of the Associate Chief Counsel (Employee Benefits and Exempt Organizations). However, other personnel from the IRS and Treasury Department participated in their development.

---

Adoption of Amendments to the Regulations

Accordingly, 26 CFR part 1 is amended as follows:

PART 1—INCOME TAXES

Paragraph 1. The authority citation for part 1 continues to read inpart as follows:

Authority: 26 U.S.C. 7805 * * * Par. 2. §1.125–4 is added to read as follows: §1.125–4 Permitted election changes.

(a) Election changes . A cafeteria plan may permit an employee to revoke an election during a period of coverage and to make a new election only as provided in paragraphs (b) through (g) of this section. Section 125 does not require a cafeteria plan to permit any of these changes. See paragraph (h) of this section for special provisions relating to qualified cash

2000–15 I.R.B. 859 April 10, 2000

or deferred arrangements, and paragraph (i) of this section for special definitions used in this section.

(b) Special enrollment rights - (1) In general. A cafeteria plan may permit an employee to revoke an election for coverage under a group health plan during a period of coverage and make a new election that corresponds with the special enrollment rights provided in section 9801(f).

(2) Examples . The following examples illustrate the application of this paragraph (b):

Example 1 . (i) Employer M provides health coverage for its employees pursuant to a plan that is subject to section 9801(f). Under the plan, employees may elect either employee-only coverage or family coverage. M also maintains a calendar year cafeteria plan under which qualified benefits, including health coverage, are funded through salary reduction. M ’s employee, A, is married to B and they have a child, C . In accordance with M ’s cafeteria plan, Employee A elects employee-only health coverage before the beginning of the calendar year. During the year, A and B adopt a child, D . Within 30 days thereafter, A wants to revoke A ’s election for employee-only health coverage and obtain family health coverage for A ’s spouse, C, and D as of the date of D ’s adoption. Employee A satisfies the conditions for special enrollment of an employee with a new dependent under section 9801(f)(2), so that A may enroll in family coverage under M ’s accident or health plan in order to provide coverage effective as of the date of D ’s adoption.

(ii) M ’s cafeteria plan may permit A to change A’s salary reduction election to family coverage for salary not yet currently available. The increased salary reduction is permitted to reflect the cost of family coverage from the date of adoption . ( A ’s adoption of D is also a change in status, and the election of family coverage is consistent with that change in status. Thus, under paragraph (c) of this section, M ’s cafeteria plan could permit A to elect family coverage prospectively in order to cover B, C, and D for the remaining portion of the period of coverage.)

Example 2. (i) The employer plans and permissible coverage are the same as in Example 1 . Before the beginning of the calendar year, Employee E elects employee- only health coverage under M ’s cafeteria plan. Employee E marries F during the plan year. F ’s employer, N, offers health coverage to N ’s employees, and, prior to the marriage, F had elected employee-only coverage. Employee E wants to revoke the election for employee-only coverage under M ’s cafeteria plan, and is considering electing family health coverage under M ’s plan or obtaining family health coverage under N ’s plan.

(ii) M ’s cafeteria plan may permit E to change E ’s salary reduction election to reflect the change to family coverage under M ’s group health plan because the marriage would result in special enrollment rights under section 9801(f), pursuant to which

an election of family coverage under M ’s group health plan would be required to be effective no later than the first day of the first calendar month beginning after the completed request for enrollment is received by the plan. ( E ’s marriage to F is also a change in status under paragraph (c) of this section, as illustrated in Example 1 of paragraph (c)(4) of this section.)

(c) Changes in status - (1) In general

• (i) Change in status rule . A cafeteria plan may permit an employee to revoke an election during a period of coverage with respect to a qualified benefits plan to which this paragraph (c) applies and make a new election for the remaining portion of the period (referred to in this section as an election change) if, under the facts and circumstances —

(A) A change in status described in paragraph (c)(2) of this section occurs; and

(B) The election change satisfies the consistency rule of paragraph (c)(3) of this section.

(ii) Application to accident or health plans and group-term life insurance plans . This paragraph (c) applies to plans providing accident or health coverage and plans providing group-term life insurance coverage.

(iii) Application to other qualified ben- efits . [RESERVED]

(2) Change in status events . The following events are changes in status for purposes of this paragraph (c):

(i) Legal marital status. Events that change an employee’s legal marital status, including the following: marriage; death of spouse; divorce; legal separation; and annulment.

(ii) Number of dependents . Events that change an employee’s number of dependents, including the following: birth; death; adoption; and placement for adoption.

(iii) Employment status . Any of the following events that change the employment status of the employee, the employee’s spouse, or the employee’s dependent: a termination or commencement of employment; a strike or lockout; a commencement of or return from an unpaid leave of absence; and a change in worksite. In addition, if the eligibility conditions of the cafeteria plan or other employee benefit plan of the employer of the employee, spouse, or dependent depend on the employment status of that individ

ual and there is a change in that individual’s employment status with the consequence that the individual becomes (or ceases to be) eligible under the plan, then that change constitutes a change in employment under this paragraph (c) (e.g., if a plan only applies to salaried employees and an employee switches from salaried to hourly-paid with the consequence that the employee ceases to be eligible for the plan, then that change constitutes a change in employment status under this paragraph (c)(2)(iii)).

(iv) Dependent satisfies or ceases to satisfy eligibility requirements . Events that cause an employee’s dependent to satisfy or cease to satisfy eligibility requirements for coverage on account of attainment of age, student status, or any similar circumstance.

(v) Residence . A change in the place of residence of the employee, spouse, or dependent.

(3) Consistency rule - (i) Application to accident or health coverage and group- term life insurance . An election change satisfies the requirements of this paragraph (c)(3) with respect to accident or health coverage or group-term life insurance only if the election change is on account of and corresponds with a change in status that affects eligibility for coverage under an employer’s plan.

(ii) Application to other qualified bene- fits. [Reserved]

(iii) Application of consistency rule. If the change in status is the employee’s divorce, annulment or legal separation from a spouse, the death of a spouse or dependent, or a dependent ceasing to satisfy the eligibility requirements for coverage, an employee’s election under the cafeteria plan to cancel accident or health insurance coverage for any individual other than the spouse involved in the divorce, annulment or legal separation, the deceased spouse or dependent, or the dependent that ceased to satisfy the eligibility requirements for coverage, respectively, fails to correspond with that change in status. Thus, if a dependent dies or ceases to satisfy the eligibility requirements for coverage, the employee’s election to cancel accident or health coverage for any other dependent, for the employee, or for the employee’s spouse fails to correspond with that change in status. In addition, if an employee,

April 10, 2000 860 2000–15 I.R.B.

spouse, or dependent gains eligibility for coverage under a family member plan (as defined in paragraph (i)(5) of this section) as a result of a change in marital status under paragraph (c)(2)(i) of this section or a change in employment status under paragraph (c)(2)(iii) of this section, an employee’s election under the cafeteria plan to cease or decrease coverage for that individual under the cafeteria plan corresponds with that change in status only if coverage for that individual becomes applicable or is increased under the family member plan. However, if the change in status is a change in the employee’s marital status under paragraph (c)(2)(i) of this section or a change in the employment status of the employee’s spouse or dependents under paragraph (c)(2)(iii) of this section, an election to increase, or an election to decrease, group-term life insurance or disability income coverage corresponds with that change in status.

(iv) Exception for COBRA. If the employee, spouse, or dependent becomes eligible for continuation coverage under the group health plan of the employee’s employer as provided in section 4980B or any similar state law, a cafeteria plan may permit the employee to elect to increase payments under the employer’s cafeteria plan in order to pay for the continuation coverage.

(4) Examples . The following examples illustrate the application of this paragraph (c):

Example 1 . (i) Employer M provides health coverage (including a health FSA) for its employees through its cafeteria plan. Before the beginning of the calendar year, Employee A elects employee-only health coverage under M ’s cafeteria plan and elects salary reduction contributions to fund coverage under the health FSA. Employee A marries B during the year. Employee B’ s employer, N, offers health coverage to N ’s employees (but not including any health FSA), and, prior to the marriage, B had elected employee-only coverage. Employee A wants to revoke the election for employee-only coverage, and is considering electing family health coverage under M ’s plan or obtaining family health coverage under N ’s plan.

(ii) Employee A ’s marriage to B is a change in status under paragraph (c)(2)(i) of this section, pursuant to which B has become eligible for coverage under M’s health plan under paragraph (c)(3)(i) of this section. Two possible election changes by A correspond with the change in status: Employee A may elect family health coverage under M ’s plan to cover A and B ; or A may cancel coverage under M ’s plan, if B elects family health coverage under N ’s plan to cover A and B . Thus, M ’s cafeteria plan may permit A to make either election change.

(iii) Employee A may also increase salary reduction contributions to fund coverage for B under the health FSA.

Example 2 . (i) Employee C, a single parent, elects family health coverage under a calendar year cafeteria plan maintained by Employer O . Employee C and C ’s 21-year old child, D, are covered under O’ s health plan. During the year, D graduates from college. Under the terms of the health plan, dependents over the age of 19 must be full-time students to receive coverage. Employee C wants to revoke C ’s election for family health coverage and obtain employee-only coverage under O ’s cafeteria plan.

(ii) D ’s loss of eligibility for coverage under the terms of the health plan is a change in status under paragraph (c)(2)(iv) of this section. A revocation of C ’s election for family coverage and new election for employee-only coverage corresponds with the change in status. Thus, O ’s cafeteria plan may permit C to elect employee-only coverage.

Example 3 . (i) Employee E is married to F and they have one child, G . Employee E is employed by Employer P, and P maintains a calendar year cafeteria plan that allows employees to elect no health coverage, employee-only coverage, employee-plusone-dependent coverage, or family coverage. Under the plan, before the beginning of the calendar year, E elects family health coverage for E, F, and G . E and F divorce during the year and F loses eligibility for coverage under P ’s plan. G does not lose eligibility for health coverage under P ’s plan upon the divorce. E now wants to revoke E ’s election under the cafeteria plan and elect no coverage.

(ii) The divorce is a change in status under paragraph (c)(2)(i). A change in the cafeteria plan election to cancel health coverage for F is consistent with that change in status. However, an election change to cancel E ’s or G’ s health coverage does not satisfy the consistency rule under paragraph (c)(3)(iii) of this section regarding cancellation of coverage for an employee’s other dependents in the event of divorce. Therefore, the cafeteria plan may not permit E to elect no coverage. However, an election to change to employee-plus-one-dependent health coverage would correspond with the change in status, and thus the cafeteria plan may permit E to elect employee- plusone-dependent health coverage.

Example 4 . (i) Employer R maintains a calendar year cafeteria plan under which full-time employees may elect coverage under one of three benefit package options provided under an accident or health plan: an indemnity option or either of two HMO options for employees who work in the respective service areas of the two HMOs. Employee A, who works in the service area of HMO #1, elects the HMO #1 option. During the year, A is transferred to another work location which is outside the HMO #1 service area and inside the HMO #2 service area.

(ii) The transfer is a change in status under paragraph (c)(2)(iii) of this section (relating to a change in worksite), and, under the consistency rule in paragraph (c)(3) of this section, the cafeteria plan may permit A to make an election change to either the indemnity option or HMO #2.

Example 5 . (i) Employer S maintains a calendar year cafeteria plan that allows employees to elect coverage under an accident or health plan providing indemnity coverage and coverage under a health FSA. Prior to the beginning of the calendar year, Employee B elects employee-only indemnity coverage, and

elects salary reduction contributions of $600 during the year to fund coverage under the health FSA for up to $600 of reimbursements for the year. Employee B ’s spouse, C, has employee-only coverage under an accident or health plan maintained by C ’s employer. During the year, C terminates employment and loses coverage under that plan. B now wants to elect family coverage under S ’s accident or health plan and increase B ’s FSA election.

(ii) C ’s termination of employment is a change in status under paragraph (c)(2)(iii) of this section, and the election change satisfies the consistency rule of paragraph (c)(3) of this section. Therefore, the cafeteria plan may permit B to elect family coverage under S ’s accident or health plan and to increase B ’s FSA coverage.

Example 6 . (i) Employer T provides group-term life insurance coverage as described under section 79. Under T ’s plan, an employee may elect life insurance coverage in an amount up to $50,000. T also maintains a calendar year cafeteria plan under which qualified benefits, including the group-term life insurance coverage, are funded through salary reduction. Employee D has a spouse and a child. Before the beginning of the year, D elects $10,000 of group-term life insurance coverage. During the year, D is divorced.

(ii) The divorce is a change in status under paragraph (c)(2)(i) of this section. Under paragraph (c)(3)(iii) of this section, either an increase or a decrease in coverage is consistent with this change in status. Thus, T ’s cafeteria plan may permit D to increase or to decrease D ’s group-term life insurance coverage.

Example 7 . (i) Employee E is married to F and they have one child, G . Employee E ’s employer, U, maintains a cafeteria plan under which employees may elect no coverage, employee-only coverage, or family coverage under a group health plan maintained by U, and may make a separate vision coverage election under the plan. Before the beginning of the calendar year, E elects family health coverage and no vision coverage under U ’s cafeteria plan. Employee F ’s employer, V, maintains a cafeteria plan under which employees may elect no coverage, employee-only coverage, or family coverage under a group health plan maintained by V, and may make a separate vision coverage election under the plan. Before the beginning of the calendar year, F elects no health coverage and employee-only vision coverage under V ’s plan. During the year, F terminates employment with V and loses vision coverage under V ’s plan. Employee E now wants to elect family vision coverage under U ’s group health plan.

(ii) F ’s termination of employment is a change in status under paragraph (c)(2)(iii) of this section, and the election change satisfies the consistency rule of paragraph (c)(3) of this section. Therefore, U ’s cafeteria plan may permit E to elect family vision coverage (covering E and G as well as F ) under U ’s group health plan.

Example 8 . (i) Before the beginning of the year, Employee H elects to participate in a cafeteria plan maintained by H ’s employer, W . However, in order to change the election during the year so as to cancel coverage, and by prior understanding with W, H terminates employment and resumes employment one week later.

(ii) In this Example 8, under the facts and circumstances, a principal purpose of the termination

2000–15 I.R.B. 861 April 10, 2000

of employment was to alter the election, and reinstatement of employment was understood at the time of termination. Accordingly, H does not have a change in status under paragraph (c)(2)(iii) of this section.

(iii) However, H’s termination of employment would constitute a change in status, permitting a cancellation of coverage during the period of unemployment, if H ’s original cafeteria plan election for the period of coverage was reinstated upon resumption of employment (for example, if W ’s cafeteria plan contains a provision requiring an employee who resumes employment within 30 days, without any other intervening event that would permit a change in election, to return to the election in effect prior to termination of employment).

(iv) If, instead, H terminates employment and cancels coverage during a period of unemployment, and then returns to work more than 30 days following termination of employment, the cafeteria plan may permit H the option of returning to the election in effect prior to termination of employment or making a new election under the plan. Alternatively, the cafeteria plan may prohibit H from returning to the plan during that plan year.

(d) Judgment, decree, or order - (1) Conforming election change. This paragraph (d) applies to a judgment, decree, or order (order) resulting from a divorce, legal separation, annulment, or change in legal custody (including a qualified medical child support order as defined in section 609 of the Employee Retirement Income Security Act of 1974 (Public Law 93-406 (88 Stat. 829))) that requires accident or health coverage for an employee’s child or for a foster child who is a dependent of the employee . A cafeteria plan will not fail to satisfy section 125 if it —

(i) Changes the employee’s election to provide coverage for the child if the order requires coverage for the child under the employee’s plan; or

(ii) Permits the employee to make an election change to cancel coverage for the child if the order requires the spouse, former spouse, or other individual to provide coverage for the child.

(2) Example . The following example illustrates the application of this paragraph (d):

Example . (i) Employer M maintains a calendar year cafeteria plan that allows employees to elect no health coverage, employee-only coverage, employee-plus-one-dependent coverage, or family coverage. M ’s employee, A, is married to B and they have one child, C . Before the beginning of the year, A elects employee-only health coverage. Employee A divorces B during the year and, pursuant to A ’s divorce agreement with B, M ’s health plan receives a qualified medical child support order (as defined in section 609 of the Employee Retirement Income Security Act of 1974) during the plan year. The order requires M ’s health plan to cover C .

(ii) Under this paragraph (d), M ’s cafeteria plan may change A ’s election from employeeonly health coverage to employee-plus-one-dependent coverage in order to cover C .

(e) Entitlement to Medicare or Med- icaid . If an employee, spouse, or dependent who is enrolled in an accident or health plan of the employer becomes entitled to coverage (i.e., becomes enrolled) under Part A or Part B of Title XVIII of the Social Security Act (Medicare)(Public Law 89-97 (79 Stat. 291)) or Title XIX of the Social Security Act (Medicaid)(Public Law 89-97 (79 Stat. 343)), other than coverage consisting solely of benefits under section 1928 of the Social Security Act (the program for distribution of pediatric vaccines), a cafeteria plan may permit the employee to make a prospective election change to cancel or reduce coverage of that employee, spouse, or dependent under the accident or health plan. In addition, if an employee, spouse, or dependent who has been entitled to such coverage under Medicare or Medicaid loses eligibility for such coverage, the cafeteria plan may permit the employee to make a prospective election to commence or increase coverage of that employee, spouse, or dependent under the accident or health plan.

(f) Significant cost or coverage changes . [Reserved]

(g) Special requirements relating to the Family and Medical Leave Act . An employee taking leave under the Family and Medical Leave Act (FMLA)(Public Law 102-530 (88 Stat. 829)) may revoke an existing election of group health plan coverage and make such other election for the remaining portion of the period of coverage as may be provided for under the FMLA.

(h) Elective contributions under a qual- ified cash or deferred arrangement . The provisions of this section do not apply with respect to elective contributions under a qualified cash or deferred arrangement (within the meaning of section 401(k)) or employee contributions subject to section 401(m). Thus, a cafeteria plan may permit an employee to modify or revoke elections in accordance with section 401(k) and (m) and the regulations thereunder.

(i) Definitions. Unless otherwise provided, the definitions in paragraphs (i)(1) though (8) of this section apply for purposes of this section.

(1) Accident or health coverage. Accident or health coverage means coverage under an accident or health plan as defined in regulations under section 105.

(2) Benefit package option. A benefit package option means a qualified benefit under section 125(f) that is offered under a cafeteria plan, or an option for coverage under an underlying accident or health plan (such as an indemnity option, an HMO option, or a PPO option under an accident or health plan).

(3) Dependent. A dependent means a dependent as defined in section 152, except that, for purposes of accident or health coverage, any child to whom section 152(e) applies is treated as a dependent of both parents.

(4) Disability income coverage. Disability income coverage means coverage under an accident or health plan that provides benefits due to personal injury or sickness, but does not reimburse expenses incurred for medical care (as defined in section 213(d)) of the employee or the employee’s spouse and dependents, and does not provide for payments described in section 105(c).

(5) Family member plan. A family member plan means a cafeteria plan or qualified benefit plan sponsored by the employer of the employee’s spouse or the employee’s dependent.

(6) FSA, health FSA. An FSA means a qualified benefits plan that is a flexible spending arrangement as defined in section 106(c)(2) . A health FSA means a health or accident plan that is an FSA.

(7) Placement for adoption. Placement for adoption means placement for adoption as defined in regulations under section 9801.

(8) Qualified benefits plan. A qualified benefits plan means an employee benefit plan governing the provision of one or more benefits that are qualified benefits under section 125(f).

(j) Effective date. This section is applicable for cafeteria plan years beginning on or after January 1, 2001. Par. 3. §1.125–4T is amended by revising paragraph (l) to read as follows: §1.125–4T Permitted election changes (temporary).

• ---

(l) Effective date. This section is applicable for plan years beginning after December 31, 1998, and on or before November 6, 2000.

April 10, 2000 862 2000–15 I.R.B.

law the determination whether those rights or interests constitute “property” or “rights to property” under Sec. 6321. Once it has been determined that state law creates sufficient interests in the taxpayer to satisfy the requirements of the federal tax lien provision, state law is inoperative to prevent the attachment of the federal liens. United States v. Bess, 357 U.S. 51, 5657. Pp. 5-11.

(a) To satisfy a tax deficiency, the Government may impose a lien on any “property” or “rights to property” belonging to the taxpayer. Secs. 6321, 6331(a). When Congress so broadly uses the term “property,” this Court recognizes that the Legislature aims to reach every species of right or interest protected by law and having an exchangeable value. E.g., Jewett v. Com- missioner, 455 U.S. 305, 309. Sec. 6334(a), which lists items exempt from levy, is corroborative. Section 6334(a)’s list is rendered exclusive by Sec. 6334(c), which provides that no other “property or rights to property shall be exempt.” Inheritances or devises disclaimed under state law are not included in Sec. 6334(a)’s catalog of exempt property. See, e.g., Bess, 357 U.S. at 57. The absence of any recognition of disclaimers in Secs. 6321, 6322, 6331(a), and 6334(a) and (c), the relevant tax collection provisions, contrasts with Sec. 2518(a), which renders qualifying state law disclaimers “with respect to any interest in property” effective for federal wealthtransfer tax purposes, and for those purposes only. Although this Court’s decisions in point have not been phrased so meticulously as to preclude the argument that state law is the proper guide to the critical determination whether Drye’s interest constituted “property” or “rights to property” under Sec. 6321, the Court is satisfied that the Code and interpretive case law place under federal, not state, control the ultimate issue whether a taxpayer has a beneficial interest in any property subject to levy for unpaid federal taxes. Pp. 5-7.

(b) The question whether a state-law right constitutes “property” or “rights to property” under Sec. 6321 is a matter of federal law. United States v. National Bank of Commerce, 472 U.S. 713, 727. This Court looks initially to state law to determine what rights the taxpayer has in

Robert E. Wenzel, Deputy Commissioner

of Internal Revenue.

ing heir’s creditors, Arkansas law provides, may not reach property thus disclaimed. Here, Drye’s disclaimer caused the estate to pass to his daughter, Theresa Drye, who succeeded her father as administrator and promptly established the Drye Family 1995 Trust (Trust). The Probate Court declared Drye’s disclaimer valid and accordingly ordered final distribution of the estate to Theresa, who then used the estate’s proceeds to fund the Trust, of which she and, during their lifetimes, her parents are the beneficiaries. Under the Trust’s terms, distributions are at the discretion of the trustee, Drye’s counsel, and may be made only for the health, maintenance, and support of the beneficiaries. The Trust is spendthrift, and under state law, its assets are therefore shielded from creditors seeking to satisfy the debts of the Trust’s beneficiaries. After Drye revealed to the IRS his beneficial interest in the Trust, the IRS filed with the county a notice of federal tax lien against the Trust as Drye’s nominee, served a notice of levy on accounts held in the Trust’s name by an investment bank, and notified the Trust of the levy. The Trust filed a wrongful levy action against the United States in the United States District Court for the Eastern District of Arkansas. The Government counterclaimed against the Trust, the trustee, and the trust beneficiaries, seeking to reduce to judgment the tax assessments against Drye, confirm its right to seize the Trust’s assets in collection of those debts, foreclose on its liens, and sell the Trust property. On cross-motions for summary judgment, the District Court ruled in the Government’s favor. The Court of Appeals for the Eighth Circuit affirmed, reading this Court’s precedents to convey that state law determines whether a given set of circumstances creates a right or interest, but federal law dictates whether that right or interest constitutes “property” or the “righ[t] to property” under Sec. 6321. Held : Drye’s disclaimer did not defeat the federal tax liens. The Internal Revenue Code’s prescriptions are most sensibly read to look to state law for delineation of the taxpayer’s rights or interests in the property the Government seeks to reach, but to leave to federal

Approved February 23, 2000.

Jonathan Talisman, Acting Assistant Secretary of the

Treasury (Tax Policy).

(Filed by the Office of the Federal Register on March 22, 2000, 8:45 a.m., and published in the issue of the Federal Register for March 23, 2000, 65 F.R. 15548)

Section 6321—Lien for Taxes

Ct. D. 2067

No. 98–1101

ROHN F. DRYE, JR., ET AL., PETITIONER v . UNITED STATES

528 U.S. _____(1999)

CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR

THE EIGHTH CIRCUIT

[December 7, 1999]

Syllabus

In 1994, Irma Drye died intestate, leaving a $233,000 estate in Pulaski County, Akansas. Petitioner Rohn Drye, her son, was sole heir to the estate under Arkansas law. Drye was insolvent at the time of his mother’s death and owed the Federal Government some $325,000 on unpaid tax assessments. The Internal Revenue Service (IRS) had valid tax liens against all of Drye’s “property and rights to property” pursuant to 26 U.S.C. Sec. 6321. Drye petitioned the Pulaski County Probate Court for appointment as administrator of his mother’s estate, and was so appointed. Several months after his mother’s death, Drye resigned as administrator after filing in the Probate Court and county land records a written disclaimer of all interests in the estate. Under Arkansas law, such a disclaimer creates the legal fiction that the disclaimant predeceased the decedent; consequently, the disclaimant’s share of the estate passes to the person next in line to receive that share. The disavow

2000–15 I.R.B. 863 April 10, 2000

the property the Government seeks to reach, then to federal law to determine whether the taxpayer’s state delineated rights qualify as “property” or “rights to property” within the compass of the federal tax lien legislation. Cf. Morgan v. Commissioner, 309 U.S. 78, 80. Just as exempt status under state law does not bind the federal collector, United States v. Mitchell, 403 U.S. 190, 204, so federal tax law is not struck blind by a disclaimer, United States v. Irvine, 511 U.S. 224, 240. Pp 7-9.

(c) The Eighth Circuit, with fidelity to the relevant Code provisions and this Court’s case law, determined first what rights state law accorded Drye in his mother’s estate. The Court of Appeals observed that, under Arkansas law, Drye had, at his mother’s death, a valuable, transferable, legally protected right to the property at issue, and noted, for example, that a prospective heir may effectively assign his expectancy in an estate under Arkansas law, and the assignment will be enforced when the expectancy ripens into a present estate. Drye emphasizes his undoubted right under Arkansas law to disclaim the inheritance, a right that is indeed personal, and not marketable. But Arkansas law primarily gave him a right of considerable value – the right either to inherit or to channel the inheritance to a close family member (the next lineal descendant). That right simply cannot be written off as a mere personal right to accept or reject a gift. In pressing the analogy to a rejected gift, Drye overlooks this crucial distinction. A donee who declines an inter vivos gift restores the status quo ante, leaving the donor to do with the gift what she will. The disclaiming heir or devisee, in contrast, does not restore the status quo, for the decedent cannot be revived. Thus, the heir inevitably exercises dominion over the property. He determines who will receive the property – himself if he does not disclaim, a known other if he does. This power to channel the estate’s assets warrants the conclusion that Drye held “property” or a “righ[t] to property” subject to the Government’s liens under Sec. 6321. Pp. 9-11.

152 F. 3d 892, affirmed.

GINSBURG, J., delivered the opinion for a unanimous Court.

No. 98-1101

ROHN F. DRYE, JR., ET AL., PETI TIONER v . UNITED STATES

528 U.S. _____(1999)

[December 7, 1999]

JUSTICE GINSBURG delivered the opinion of the Court.

This case concerns the respective provinces of state and federal law in determining what is property for purposes of federal tax lien legislation. At the time of his mother’s death, petitioner Rohn F. Drye, Jr., was insolvent and owed the Federal Government some $325,000 on unpaid tax assessments for which notices of federal tax liens had been filed. His mother died intestate, leaving an estate with a total value of approximately $233,000 to which he was sole heir. After the passage of several months, Drye disclaimed his interest in his mother’s estate, which then passed by operation of state law to his daughter. This case presents the question whether Drye’s interest as heir to his mother’s estate constituted “property” or a “righ[t] to property” to which the federal tax liens attached under 26 U.S.C. Sec. 6321, despite Drye’s exercise of the prerogative state law accorded him to disclaim the interest retroactively.

We hold that the disclaimer did not defeat the federal tax liens. The Internal Revenue Code’s prescriptions are most sensibly read to look to state law for delineation of the taxpayer’s rights or interests, but to leave to federal law the determination whether those rights or interests constitute “property” or “rights to property” within the meaning of Sec. 6321. “[O]nce it has been determined that state law creates sufficient interests in the [taxpayer] to satisfy the requirements of [the federal tax lien provision], state law is inoperative to prevent the attachment of liens created by federal statutes in favor of the United States.” United States v. Bess, 357 U.S. 51, 5657 (1958).

CERTIORARI TO THE UNITED

STATES COURT OF APPEALS

FOR THE EIGHTH CIRCUIT

I A

The relevant facts are not in dispute. On August 3, 1994, Irma Deliah Drye died intestate, leaving an estate worth approximately $233,000, of which $158,000 was personalty and $75,000 was realty located in Pulaski County, Arkansas. Petitioner Rohn F. Drye, Jr., her son, was sole heir to the estate under Arkansas law. See Ark. Code Ann. Sec. 28-9-214 (1987) (intestate interest passes “[f]irst, to the children of the intestate”). On the date of his mother’s death, Drye was insolvent, and owed the Government approximately $325,000, representing assessments for tax deficiencies in years 1988, 1989, and 1990. The Internal Revenue Service (IRS or Service) had made assessments against Drye in November, 1990 and May, 1991, and had valid tax liens against all of Drye’s “property and rights to property” pursuant to 26 U.S.C. Sec. 6321.

Drye petitioned the Pulaski County Probate Court for appointment as administrator of his mother’s estate, and was so appointed on August 17, 1994. Almost six months later, on February 4, 1995, Drye filed in the Probate Court and land records of Pulaski County a written disclaimer of all interests in his mother’s estate. Two days later, Drye resigned as administrator of the estate. Under Arkansas law, an heir may disavow his inheritance by filing a written disclaimer no later than nine months after the death of the decedent. Ark. Code Ann. Secs. 28-2-101, 28-2-107 (1987). The disclaimer creates the legal fiction that the disclaimant predeceased the decedent; consequently, the disclaimant’s share of the estate passes to the person next in line to receive that share. The disavowing heir’s creditors, Arkansas law provides, may not reach property thus disclaimed. Sec. 28-2-108. In the case at hand, Drye’s disclaimer caused the estate to pass to his daughter, Theresa Drye, who succeeded her father as administrator and promptly established the Drye Family 1995 Trust (Trust).

On March 10, 1995, the Probate Court declared valid Drye’s disclaimer of all interest in his mother’s estate, and accordingly ordered final distribution of the estate to Theresa Drye. Theresa Drye then used the estate’s proceeds to fund the Trust, of which she and, during their lifetimes, her

April 10, 2000 864 2000–15 I.R.B.

“property,” we recognize, as we did in the context of the gift tax, that the Legislature aims to reach “`every species of right or interest protected by law and having an exchangeable value.’” Jewett v. Commis- sioner, 455 U.S. 305, 309 (1982) (quoting S.Rep. No. 665, 72d Cong., 1st Sess., 39 (1932); H.R.Rep. No. 708, 72d Cong., 1st Sess., 27 (1932)).

Section 6334(a) of the Code is corroborative. That provision lists property exempt from levy. The list includes 13 categories of items; among the enumerated exemptions are certain items necessary to clothe and care for one’s family, unemployment compensation, and workers’ compensation benefits. Secs. 6334(a)(1), (2), (4), (7). The enumeration contained in Sec. 6334(a), Congress directed, is exclusive: “Notwithstanding any other law of the United States . . ., no property or rights to property shall be exempt from levy other than the property specifically made exempt by subsection (a).” Sec. 6334(c). Inheritances or devises disclaimed under state law are not included in Sec. 6334(a)’s catalog of property exempt from levy. See Bess, 357 U.S. at 57 (“The fact that . . . Congress provided specific exemptions from distraint is evidence that Congress did not intend to recognize further exemptions which would prevent attachment of [federal tax] liens[.]”); United States v. Mitchell, 403 U.S. 190, 205 (1971) (“Th[e] language [of Sec. 6334] is specific, and it is clear, and there is no room in it for automatic exemption of property that happens to be exempt from state levy under state law.”). The absence of any recognition of disclaimers in Secs. 6321, 6322, 6331(a), and 6334(a) and (c), the relevant tax collection provisions, contrasts with Sec. 2518(a) of the Code, which renders qualifying state law disclaimers “with respect to any interest in property” effective for federal wealthtransfer tax purposes and for those purposes only. ³

Drye nevertheless refers to cases indicat

3 See Pennell, Recent Wealth Transfer Tax Developments, in Sophisticated Estate Planning Techniques 69, 117-118 (ALI-ABA Continuing Legal Ed. 1997) (“The fact that a qualified disclaimer by an estate beneficiary is deemed to relate back to the decedent’s death for state property law or federal gift tax purposes is not sufficient to preclude a federal tax lien for the disclaimant’s delinquent taxes from attaching to the disclaimed property as of the moment of the decedent’s death. . . . [T]he qualified disclaimer provision in Sec. 2518 only applies for purposes of Subtitle B and the lien provisions are in Subtitle F.”).

parents are the beneficiaries. Under the Trust’s terms, distributions are at the discretion of the trustee, Drye’s counsel Daniel M. Traylor, and may be made only for the health, maintenance, and support of the beneficiaries. The Trust is spendthrift, and, under state law, its assets are therefore shielded from creditors seeking to satisfy the debts of the Trust’s beneficiaries.

Also in 1995, the IRS and Drye began negotiations regarding Drye’s tax liabilities. During the course of the negotiations, Drye revealed to the Service his beneficial interest in the Trust. Thereafter, on April 11, 1996, the IRS filed with the Pulaski County Circuit Clerk and Recorder a notice of federal tax lien against the Trust as Drye’s nominee. The Service also served a notice of levy on accounts held in the Trust’s name by an investment bank, and notified the Trust of the levy.

B

On May 1, 1996, invoking 26 U.S.C. Sec. 7426(a)(1), the Trust filed a wrongful levy action against the United States in the United States District Court for the Eastern District of Arkansas. The Government counterclaimed against the Trust, the trustee, and the trust beneficiaries, seeking to reduce to judgment the tax assessments against Drye, confirm its right to seize the Trust’s assets in collection of those debts, foreclose on its liens, and sell the Trust property. On cross-motions for summary judgment, the District Court ruled in the Government’s favor.

The United States Court of Appeals for the Eighth Circuit affirmed the District Court’s judgment. Drye Family 1995 Trust v. United States, 152 F.3d 892 (1998). The Court of Appeals understood our precedents to convey that “state law determines whether a given set of circumstances creates a right or interest; federal law then dictates whether that right or interest constitutes “property” or the “right to property” under Sec. 6321.” Id . at 898.

We granted certiorari, 526 U.S. __ (1999), to resolve a conflict between the Eighth Circuit’s holding and decisions of the Fifth and Ninth Circuits. ¹ We now affirm.

II

Under the relevant provisions of the Internal Revenue Code, to satisfy a tax deficiency, the Government may impose a lien

on any “property” or “rights to property” belonging to the taxpayer. Section 6321 provides: “If any person liable to pay any tax neglects or refuses to pay the same after demand, the amount . . . shall be a lien in favor of the United States upon all property and rights to property, whether real or personal, belonging to such person.” 26 U.S.C. Sec. 6321. A complementary provision, Sec. 6331(a), states:

“If any person liable to pay any tax neglects or refuses to pay the same within 10 days after notice and demand, it shall be lawful for the Secretary to collect such tax . . . by levy upon all property and rights to property (except such property as is exempt under section 6334) belonging to such person or on which there is a lien provided in this chapter for the payment of such tax. ²

The language in Secs. 6321 and 6331(a), this Court has observed, “is broad, and reveals on its face that Congress meant to reach every interest in property that a taxpayer might have.” United States v. Na- tional Bank of Commerce, 472 U.S. 713, 719720 (1985) (citing 4 B. Bittker, Federal Taxation of Income, Estates and Gifts Par. 111.5.4, p. 111100 (1981)); see also Glass City Bank v. United States, 326 U.S. 265, 267 (1945) (“Stronger language could hardly have been selected to reveal a purpose to assure the collection of taxes.”). When Congress so broadly uses the term

1 In the view of those courts, state law holds sway. Under their approach, in a State adhering to an acceptance-rejection theory, under which a property interest vests only when the beneficiary accepts the inheritance or devise, the disclaiming taxpayer prevails and the federal liens do not attach. If, instead, the State holds to a transfer theory, under which the property is deemed to vest in the beneficiary immediately upon the death of the testator or intestate, the taxpayer loses and the federal lien runs with the property. See Leggett v. United States, 120 F. 3d 592, 594 (CA5 1997); Mapes v. United States, 15 F. 3d 138, 140 (CA9 1994); accord, United States v. Davidson, 55 F. Supp. 2d 1152, 1155 (Colo. 1999). Drye maintains that Arkansas adheres to the acceptance-rejection theory.

2 The Code further provides: “Unless another date is specifically fixed by law, the lien imposed by section 6321 shall arise at the time the assessment is made and shall continue until the liability for the amount so assessed (or a judgment against the taxpayer arising out of such liability) is satisfied or becomes unenforceable by reason of lapse of time.” 26 U.S.C. Sec. 6322.

2000–15 I.R.B. 865 April 10, 2000

ing that state law is the proper guide to the critical determination whether his interest in his mother’s estate constituted “property” or “rights to property” under Sec. 6321. His position draws support from two recent appellate opinions: Leggett v. United States, 120 F.3d 592, 597 (CA5 1997) (“Section 6321 adopts the state’s definition of property interest.”); and Mapes v. United States, 15 F.3d 138, 140 (CA9 1994) (“For the answer to th[e] question

[whether taxpayer had the requisite interest in property], we must look to state law, not federal law.”). Although our decisions in point have not been phrased so meticulously as to preclude Drye’s argument, ⁴ we are satisfied that the Code and interpretive case law place under federal, not state, control the ultimate issue whether a taxpayer has a beneficial interest in any property subject to levy for unpaid federal taxes.

III

As restated in National Bank of Com- merce : “The question whether a state law right constitutes ‘property’ or ‘rights to property’ is a matter of federal law.” 472 U.S. at 727. We look initially to state law to determine what rights the taxpayer has in the property the Government seeks to reach, then to federal law to determine whether the taxpayer’s state-delineated rights qualify as “property” or “rights to property” within the compass of the federal tax lien legislation. Cf. Morgan v. Commis- sioner, 309 U.S. 78, 80 (1940) (“State law creates legal interests and rights. The federal revenue acts designate what interests or rights, so created, shall be taxed.”).

In line with this division of competence, we held that a taxpayer’s right under state law to withdraw the whole of the proceeds from a joint bank account constitutes “property” or the “righ[t] to property” subject to levy for unpaid federal taxes, although state law would not allow ordinary creditors similarly to deplete the account. National Bank of Commerce, 472 U.S. at 723-727. And we earlier held that a taxpayer’s right under a life insurance policy to compel his insurer to pay him the cash surrender value qualifies as “property” or a

4 See, e.g., United States v. National Bank of Commerce, 472 U.S. 713, 722 (1985) (“[T]he federal statute ‘creates no property rights, but merely attaches consequences, federally defined, to rights created under state law.’”) (quoting United States v. Bess, 357 U.S. 51, 55 (1958)).

“righ[t] to property” subject to attachment for unpaid federal taxes, although state law shielded the cash surrender value from creditors’ liens. Bess, 357 U.S. at 5657. ⁵

By contrast, we also concluded, again as a matter of federal law, that no federal tax lien could attach to policy proceeds unavailable to the insured in his lifetime. Id . at 55-56 (“It would be anomalous to view as “property” subject to lien proceeds never within the insured’s reach to enjoy.”). ⁶

Just as “exempt status under state law does not bind the federal collector,” Mitchell, 403 U.S. at 204, so federal tax law “is not struck blind by a disclaimer,” United States v. Irvine, 511 U.S. 224, 240 (1994). Thus, in Mitchell, the Court held that, although a wife’s renunciation of a marital interest was treated as retroactive under state law, that state law disclaimer did not determine the wife’s liability for federal tax on her share of the community income realized before the renunciation. See 403 U.S. at 204 (right to renounce does not indicate that taxpayer never had a right to property).

5 5. Accord, Bank One Ohio Trust Co . v. United States, 80 F. 3d 173, 176 (CA6 1996) (“Federal law did not create [the taxpayer’s] equitable income interest [in a spendthrift trust], but federal law must be applied in determining whether the interest constitutes ‘property’ for purposes of Sec. 6321.”); 21 West Lancaster Corp. v. Main Line Restaurant, Inc ., 790 F. 2d 354, 357358 (CA3 1986) (although a liquor license did not constitute “property” and could not be reached by creditors under state law, it was nevertheless “property” subject to federal tax lien); W. Plumb, Federal Tax Liens 27 (3d ed. 1972) (“[I]t is not material that the economic benefit to which the [taxpayer’s local law property] right pertains is not characterized as ‘property’ by local law.”).

6Compatibly, in Aquilino v. United States, 363 U.S. 509 (1960), we held that courts should look first to state law to determine “‘the nature of the legal interest’” a taxpayer has in the property the Government seeks to reach under its tax lien. Id. at 513 (quoting Morgan v. Commissioner, 309 U.S. 78, 82 (1940)). We then reaffirmed that federal law determines whether the taxpayer’s interests are sufficient to constitute “property” or “rights to property” subject to the Government’s lien. Id. at 513-514. We remanded in Aquilino for a determination whether the contractor-taxpayer held any beneficial interest, as opposed to “bare legal title,” in the funds at issue. Id. at 515-516; see also Note, Property Subject to the Federal Tax Lien, 77 Harv. L. Rev. 1485, 1491 (1964) (“ Aquilino supports the view that the Court has chosen to apply a federal test of classification, for the contractor concededly had legal title to the funds and yet in remanding the Court indicated that this statecreated incident of ownership was not a sufficient ‘right to property’ in the contract proceeds to allow the tax lien to attach. In this sense Aquilino follows Bess in requiring that the taxpayer must have a beneficial interest in any property subject to the lien.” (footnote omitted)).

IV

The Eighth Circuit, with fidelity to the relevant Code provisions and our case law, determined first what rights state law accorded Drye in his mother’s estate. It is beyond debate, the Court of Appeals observed, that, under Arkansas law, Drye had, at his mother’s death, a valuable, transferable, legally protected right to the property at issue. See 152 F.3d at 895 (although Code does not define “property” or “rights to property,” appellate courts read those terms to encompass “state law rights or interests that have pecuniary value and are transferable”). The court noted, for example, that a prospective heir may effectively assign his expectancy in an estate under Arkansas law, and the assignment will be enforced when the expectancy ripens into a present estate. See id. at 895-896 (citing several Arkansas Supreme Court decisions, including: Clark v. Rutherford, 227 Ark. 270, 270-271, 298 S.W. 2d 327, 330 (1957); Bradley Lumber Co. of Ark . v. Burbridge, 213 Ark. 165, 172, 210 S.W. 2d 284, 288 (1948); Leggett v. Martin, 203 Ark. 88, 94, 156 S.W. 2d 71, 74-75 (1941)). ⁷ {7}

Drye emphasizes his undoubted right under Arkansas law to disclaim the inheritance, see Ark.Code Ann. Sec. 28-2-101 (1987), a right that is indeed personal and not marketable. See Brief for Petitioners 13 (right to disclaim is not transferable and has no pecuniary value). But Arkansas law primarily gave Drye a right of considerable value–the right either to inherit or to channel the inheritance to a close family member (the next lineal descendant). That right simply cannot be written off as a mere “personal right . . . to accept or reject [a] gift.” Brief for Petitioners 13.

In pressing the analogy to a rejected gift, Drye overlooks this crucial distinc

7In recognizing that state law rights that have pecuniary value and are transferable fall within Sec. 6321, we do not mean to suggest that transferability is essential to the existence of “property” or “rights to property” under that section. For example, although we do not here decide the matter, we note that an interest in a spendthrift trust has been held to constitute “‘property’ for purposes of Sec. 6321” even though the beneficiary may not transfer that interest to third parties. See Bank One, 80 F. 3d at 176. Nor do we mean to suggest that an expectancy that has pecuniary value and is transferable under state law would fall within Sec. 6321 prior to the time it ripens into a present estate.

April 10, 2000 866 2000–15 I.R.B.

tion. A donee who declines an inter vivos gift generally restores the status quo ante, leaving the donor to do with the gift what she will. The disclaiming heir or devisee, in contrast, does not restore the status quo, for the decedent cannot be revived. Thus, the heir inevitably exercises dominion over the property. He determines who will receive the property – himself if he does not disclaim, a known other if he does. See Hirsch, The Problem of the Insolvent Heir, 74 Cornell L. Rev. 587, 607608 (1989). This power to channel the estate’s assets warrants the conclusion that Drye held “property” or a “righ[t] to property” subject to the Government’s liens.

• ---

In sum, in determining whether a federal taxpayer’s state law rights constitute “property” or “rights to property,” “[t]he important consideration is the breadth of the control the [taxpayer] could exercise over the property.” Morgan, 309 U.S. at 83. Drye had the unqualified right to receive the entire value of his mother’s estate (less administrative expenses), see National Bank of Commerce, 472 U.S. at 725 (confirming that unqualified “right to receive property is itself a property right” subject to the tax collector’s levy), or to channel that value to his daughter. The control rein he held under state law, we hold, rendered the inheritance “property” or “rights to property” belonging to him within the meaning of Sec. 6321, and hence subject to the federal tax liens that sparked this controversy.

For the reasons stated, the judgment of the Court of Appeals for the Eighth Circuit is

Affirmed.

Section 6513 — Time Return Filed and Tax Considered Paid

Ct. D. 2066

No. 98-1667

DAVID H. BARAL, PETITIONER v.

UNITED STATES

528 U.S. ___(2000)

[February 22, 2000]

Syllabus

Two remittances were made to the Internal Revenue Service toward petitioner Baral’s income tax liability for the 1988 tax year: a withholding of $4,104 from Baral’s wages throughout 1988 by his employer, and an estimated income tax of $1,100 remitted in January 1989 by Baral. Baral’s income tax return for 1988 was due on April 15, 1989. Though he received an extension until August 15, he missed this deadline and did not file the return until June 1, 1993. On the return, he claimed a $1,175 overpayment and asked the Service to apply this excess as a credit toward his outstanding tax obligations for the 1989 tax year. The Service denied the requested credit, concluding that the claim exceeded the ceiling imposed by 26 U.S.C. Sec. 6511(b)(2)(A), which states that the amount of the credit or refund shall not exceed the portion of the tax paid within the period, immediately preceding the filing of the claim, equal to 3 years plus the period of any extension of time for filing the return. Since Baral filed his return on June 1, 1993, and received a 4-month extension from the initial due date, the relevant look-back period under Sec. 6511(b)(2)(A) extended from June 1, 1993, back to February 1, 1990 (i.e., three years plus four months). According to the Service, Baral had paid no portion of the overpaid tax during that period, and so faced a ceiling of zero on any allowable refund or credit. Baral commenced this suit for refund in the Federal District Court, which granted the Service summary judgment. The Court of Appeals affirmed, concluding that both remittances were “paid” on April 15, 1989. Held: Remittances of estimated income tax and withholding tax are “paid” on the due date of a calendar year taxpayer’s income tax return. Sections 6513(b)(1) and (2) unequivocally provide that the two remittances were “paid” on April 15, 1989, for purposes of Sec. 6511(b)(2)(A), so that they precede the look-back period, which began on February 1, 1990. Subsection (1) resolves when the remittance

CERTIORARI TO THE UNITED

[February 22, 2000]

JUSTICE THOMAS delivered the opinion of the Court.

Internal Revenue Code Sec. 6511(b)(2)(A) imposes a ceiling on the amount of credit or refund to which a taxpayer is entitled as compensation for an overpayment of tax: “[T]he amount of the credit or refund shall not exceed the portion of the tax paid within the period, immediately preceding the filing of the claim, equal to 3 years plus the period of any extension of time for filing the return.” 26 U.S.C. Sec. 6511(b)(2)(A). We are called upon in this case to decide

STATES COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA

CIRCUIT

of Baral’s employer’s withholding tax was “paid,” and subsection (2) determines when his remittance of estimated income tax was “paid.” Because neither these remittances nor any others were “paid” within the look-back period, the ceiling on Baral’s requested $1,175 credit is zero, and the Service was correct to deny that credit. Contrary to Baral’s claim, the withholding tax and estimated tax are not taxes in their own right (separate from the income tax), that are converted into income tax only on the income tax return. Rather, they are methods for collecting income taxes. And the Tax Code directly contradicts Baral’s notion that income tax is “paid” under Sec. 6511(b)(2)(A) only when the income tax is assessed. See Sec. 6151(a). His position also finds no support in Rosenman v. United States, 323 U.S. 658, and would work to the detriment of timely taxpayers, who would be denied interest for the time between filing a return claiming a refund or credit and the Service’s assessment. Pp. 3-9.

172 F. 3d 918 affirmed.

THOMAS, J., delivered the opinion for a unanimous Court.

No. 98-1667

DAVID H. BARAL,

PETITIONER v. UNITED STATES

ON WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS FOR THE DISTRICT OF

COLUMBIA CIRCUIT

2000–15 I.R.B. 867 April 10, 2000

when two types of remittance are “paid” for purposes of this section: a remittance by a taxpayer of estimated income tax, and a remittance by a taxpayer’s employer of withholding tax. The plain language of a nearby Code section, Sec. 6513(b), provides the answer: these remittances are “paid” on the due date of the taxpayer’s income tax return.

I

The relevant facts are not disputed. Two remittances were made to the Internal Revenue Service toward petitioner David H. Baral’s income tax liability for the 1988 tax year. The first, a withholding of $4,104 from Baral’s wages throughout 1988, was a garden-variety collection of income tax by the employer, see Sec. 3402. The second, an estimated income tax of $1,100 remitted in January 1989, was sent by Baral himself out of concern that his employer’s withholding might be inadequate to meet his tax obligation for the year, see Sec. 6654. In the ordinary course, Baral’s income tax return for 1988 was due to be filed on April 15, 1989. Though he applied for and received an extension of time until August 15, Baral missed this deadline; he did not file the return until nearly four years later, on June 1, 1993. The Service, on July 19, 1993, assessed the tax liability reported on this belated return.

On the return, Baral claimed that he (and his employer on his behalf) had remitted $1,175 more with respect to the 1988 taxable year than he actually owed. Baral requested that the Service apply this excess as a credit toward his outstanding tax obligations for the 1989 taxable year. The Service denied the requested credit. It did not dispute that Baral had timely filed the request under the relevant filing deadline — “within 3 years from the time the return was filed or 2 years from the time the tax was paid, whichever of such periods expires the later.” Sec. 6511(a); see Sec. 6511(b)(1). But the Service concluded that the claim exceeded the ceiling imposed by Sec. 6511(b)(2)(A). That provision states that “the amount of the credit or refund shall not exceed the portion of the tax paid within the period, immediately preceding the filing of the claim, equal to 3 years plus the period of any extension of time for filing the return.” Ibid .; see generally Commissioner

v. Lundy, 516 U.S. 235, 240 (1996) (explaining that Sec. 6511 contains two separate timeliness provisions: (1) Sec. 6511(b)(1)’s filing deadline and (2) Sec. 6511(b)(2)’s ceilings, which are defined by reference to that provision’s “lookback period[s]”). Since Baral had filed his return on June 1, 1993, and had earlier received a 4-month extension from the initial due date, the relevant look-back period under Sec. 6511(b)(2)(A) extended from June 1, 1993, back to February 1, 1990 (i.e., three years plus four months). According to the Service, Baral had paid no portion of the overpaid tax during that period, and so faced a ceiling of zero on any allowable refund or credit.

Baral then commenced the instant suit for refund in Federal District Court. That court sustained the Service’s position and granted summary judgment in its favor. The Court of Appeals affirmed. App. to Pet. for Cert. A-1, judgt. order reported at 172 F. 3d 918 (CADC 1999). The Court of Appeals looked to Sec. 6513(b)(1), which states that amounts of tax withheld from wages “shall . . . be deemed to have been paid by [the taxpayer] on the 15th day of the fourth month following the close of his taxable year,” and to Sec. 6513(b)(2), which makes similar provision for amounts submitted as estimated income tax, and concluded that, under these subsections, both of the remittances at issue were “paid” on April 15, 1989. Accord, e.g., Dantzler v. United States, 183 F. 3d 1247, 1250-1251 (CA11 1999) (estimated income tax); Ertman v. United States, 165 F. 3d 204, 207 (CA2 1999) (same); Ehle v. United States, 720 F. 2d 1096, 1096-1097 (CA9 1983) (withholding from wages). In view of apparent tension between this approach and a decision of the Court of Appeals for the Fifth Circuit, Ford v. United States, 618 F. 2d 357, 360-361, and n. 4 (1980) (suggesting that a remittance respecting any sort of tax is “paid” under Sec. 6511 only when the Service assesses the tax liability), we granted certiorari, 527 U.S. 1067 (1999).

II

The parties renew before us the contentions advanced below. The Government submits that Sec. 6513(b)(1) and (2) unequivocally provide that the two remittances at issue were “paid” on April 15, 1989 for purposes of Sec. 6511(b)(2)(A),

so that they precede the look-back period, which, as noted, commenced on February 1, 1990. Baral, on the other hand, urges that a tax cannot be “paid” within the meaning of Sec. 6511(b)(2)(A) until the tax liability is assessed ( i.e ., the value of the liability is definitively fixed). According to Baral, the requisite assessment might be made either when the taxpayer files his return (here June 1, 1993) or when the Service, under Sec. 6201, formally assesses the liability (here July 19, 1993), though he seems to prefer the latter date. See Brief for Petitioner 9 (“Payment of the income tax . . . occurred at the earliest on June 1, 1993, when the amount of that tax first became known, and more precisely on July 19, 1993, when the income tax was assessed”).

We agree with the Government that Sec. 6513(b)(1) and (2) settle the matter. We set out these provisions in full:

“(b) Prepaid Income Tax “For purposes of section 6511 or

6512 — “(1) Any tax actually deducted and withheld at the source during any calendar year under chapter 24 shall, in respect of the recipient of the income, be deemed to have been paid by him on the 15th day of the fourth month following the close of his taxable year with respect to which such tax is allowable as a credit under section 31.

“(2) Any amount paid as estimated income tax for any taxable year shall be deemed to have been paid on the last day prescribed for filing the return under section 6012 for such taxable year (determined without regard to any extension of time for filing such return).” Subsection (1) resolves when the remittance of withholding tax by Baral’s employer was “paid”: Since Baral is a calendar year taxpayer, the $4,104 withheld from his wages during the 1988 calendar year was “paid” on April 15, 1989. Subsection (2) determines when Baral’s remittance of estimated income tax was “paid”: Since the referenced Sec. 6012 together with Sec. 6072(a) require that a calendar year taxpayer like Baral file his income tax return on the April 15th following the close of the calendar year, the $1,100 remitted as an estimated income tax in respect of Baral’s 1988 tax liability

April 10, 2000 868 2000–15 I.R.B.

was likewise “paid” on April 15, 1989. And both of these statutorily defined payment dates apply “[f]or purposes of section 6511,” the provision directly at issue in this case. This means that, under Sec. 6511(b)(2)(A), both remittances at issue (the withholding and the estimated income tax) fall before, and hence outside, the look-back period, which commenced on February 1, 1990. Because neither these remittances nor any others were “paid” within the look-back period (February 1, 1990, to June 1, 1993), the ceiling on Baral’s requested credit of $1,175 is zero, and the Service was correct to deny the requested credit.

Baral disputes this reading of Sec. 6513(b). He claims that Secs. 6513(b)(1) and (2) establish a “deemed paid” date for payment of estimated tax and withholding tax, but in no sense prescribe when the in- come tax is “paid,” which is the crucial inquiry under Sec. 6511(b)(2)(A). According to Baral, withholding tax and estimated tax are taxes in their own right (separate from the income tax), and are converted into income tax only on the income tax return. (On this view, payment of the income tax occurred no earlier than June 1, 1993, when Baral filed the return.) This reading is evident, he says, from the significance that the Treasury Regulations place on the filing of the return, see 26 CFR Sec. 301.6315-1 (1999) (“The aggregate amount of the payments of estimated tax should be entered upon the income tax return for such taxable year as payments to be applied against the tax shown on such return”); Sec. 301.64023(a)(1) (providing that “in the case of an overpayment of income taxes, a claim for credit or refund of such overpayment shall be made on the appropriate income tax return”), and from the fact that the Code’s provisions regarding withholding and estimated tax are found in different subtitles (C and F, respectively) from the provisions governing income tax (A).

We disagree. Withholding and estimated tax remittances are not taxes in their own right, but methods for collecting the income tax. Thus, Sec. 31(a)(1) of the Code provides that amounts withheld from wages “shall be allowed to the recipient of the income as a credit against the

[income] tax,” and Sec. 6315 states that “[p]ayment of the estimated income tax, or any installment thereof, shall be con

sidered payment on account of the income taxes imposed by subtitle A for the taxable year.” Similarly, one of the regulations cited by Baral explains that a remittance of estimated income tax “shall be considered payment on account of the in- come tax for the taxable year for which the estimate is made.” 26 CFR Sec. 301.6315-1 (1999) (emphasis added). Baral’s reading fails, moreover, to give any meaning to 26 U.S.C. Sec. 6513. That section exists “[f]or purposes of section 6511,” and Sec. 6511 concerns credits and refunds, which result only when the aggregate of remittances (such as withholding tax and estimated income tax) exceed the tax liability, see Sec. 6401. Thus, the concepts of credit or refund have no meaning as applied to Baral’s notion of withholding taxes and estimated taxes as freestanding taxes. Not surprisingly, the caption to Sec. 6513(b) describes withholding and estimated income tax remittances as “[p]repaid income tax.”

Taking a more metaphysical tack, Baral contends that income tax is “paid” under Sec. 6511(b)(2)(A) only when the income tax is assessed — here, June 1 or July 19, 1993, see supra at 4– because the concept of payment makes sense only when the liability is “defined, known, and fixed by assessment,” Brief for Petitioner 9. But the Code directly contradicts the notion that payment may not occur before assessment. See Sec. 6151(a) (“[T]he person required to make [a return of tax] shall, without assessment or notice and demand from the Secretary, pay such tax . . . at the time and place fixed for filing the return” (emphasis added)); Sec. 6213(b)(4) (“Any amount paid as a tax or in respect of a tax may be assessed upon the receipt of such payment” (emphasis added)). Nor does Baral’s argument find support in our decision in Rosenman v. United States, 323 U.S. 658 (1945), where we applied Sec. 6511’s predecessor to a remittance of estimated estate tax. To be sure, a part of our opinion seems to endorse petitioner’s view that payment only occurs at assessment:

“It is [the] erroneous assessment that gave rise to a claim for refund. Not until then was there such a claim as could start the time running for presenting the claim. In any responsible sense

payment was then made by the application of the balance credited to the petitioners in the suspense account . . ..” Id ., at 661.

But the remittance in Rosenman, unlike the ones here, was not governed by a “deemed paid” provision akin to Sec. 6513, and we therefore had no occasion to consider the implications of such a provision for determining when a tax is “paid” under the predecessor to Sec. 6511. See ibid . (noting that “no extraneous relevant aids to construction have been called to our attention”). Moreover, if the quoted passage had represented our holding, we would have broadly rejected the Government’s argument that payment occurred when the remittance of estimated estate tax was made, instead of rejecting the argument, as we did, only because it was not in accord with the “tenor” of the “business transaction,” id. at 663. ¹

We observe, finally, that Baral’s position — to the extent he submits that payment occurs only at the Service’s assessment — would work to the detriment of taxpayers who timely file their returns and claim a refund or credit as compensation for an overpayment. The Service will not always assess the taxpayer’s liability immediately upon receiving the return; the Service generally has three years in which to do so, see 26 U.S.C. Sec. 6501(a) (1994 ed., Supp. III). The Code does allow for payment of interest to the taxpayer on overpayments once the return has been filed and the tax paid, 26 U.S.C. Sec. 6611 (1994 ed. and Supp. III), but, under Baral’s view, no interest could accrue during the time between the filing of the return and the Service’s assessment. Fortunately for the timely taxpayer, the Code definitively rejects Baral’s position in this setting. Section 6611(d) of 26 U.S.C. explains that the date of payment

1 Central to our analysis in this regard was a concern that the Service should not be able to treat the same remittance as a payment for statute of limitations purposes—disadvantaging the taxpayer by decreasing the time in which a refund claim could be filed— and as a deposit for purposes of accrual of interest on overpayments—disadvantaging the taxpayer by starting the accrual of interest only at assessment. Rosenman, 323 U.S. at 662-663. Indeed, we suggested that an amendment to the Code disapproving of the Service’s treatment of remittances as deposits for interest purposes might change the analysis. Id . at 663 (citing Current Tax Payment Act of 1943, Sec. 4(d), 57 Stat. 140) (presently codified at 26 U.S.C. Sec. 6401(c)).

2000–15 I.R.B. 869 April 10, 2000

is determined according to the provisions of Sec. 6513, which, as noted, supra at 5, plainly set a deemed date of payment for remittances of withholding and estimated income tax on the April 15 following the relevant taxable year. ²

• ---

For the foregoing reasons, we affirm the judgment below.

It is so ordered.

2 We need not address the proper treatment under Sec. 6511 of remittances that, unlike withholding and estimated income tax, are not governed by a “deemed paid” provision akin to Sec. 6513(b). Such remittances might include remittances of estimated estate tax, as in Rosenman, or remittances of any sort of tax by a taxpayer under audit in order to stop the running of interest and penalties, see, e.g., Moran v. United States, 63 F. 3d 663 (CA7 1995). In the latter situation, the taxpayer will often desire treatment of the remittance as a deposit — even if this means forfeiting the right to interest on an overpayment-in order to preserve jurisdiction in the Tax Court, which depends on the existence of a deficiency, 26 U.S.C. Sec. 6213 (1994 ed. and Supp. III), a deficiency that would be wiped out by treatment of the remittance as a payment. We note that the Service has promulgated procedures to govern classification of a remittance as a deposit or payment in this context. See Rev. Proc. 84–58, 1984–2 Cum. Bull. 501.

April 10, 2000 870 2000–15 I.R.B.