1 United States Court of Appeals,

Fifth Circuit.

No. 95-60576.

ESTATE of Louise S. MONROE, Deceased, Robert J. Monroe,

Provisional Administrator and Estate of J. Edgar Monroe, Executor,

Petitioners-Appellants,

v.

COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee.

Oct. 9, 1997.

Appeal from the Decision of the United States Tax Court.

Before KING, JONES and DUHÉ, Circuit Judges.

EDITH H. JONES, Circuit Judge:

I. BACKGROUND

This case requires interpretation of § 2518(b) of the Internal

Revenue Code and its accompanying regulati o ns, which describe

"qualified disclaimer" of benefits, a device comm only used for

"post-mortem" estate and other tax planning. The disclaimants here

were 29 legatees of the wife's will, all of whom were asked by her

husband and did irrevocably disclaim the proffered be quests.

Shortly afterward, the husband gave them gifts equaling or

exceeding the bequests, and not long after that he died at age 93.

The Tax Court concluded that the disclaimers were ind uced or

coerced by "the implied promise that [the dis claimants] would be

better off it they did what Monroe wanted them to do ...," even

though he made no explicit promises. Finding that the

"coerced/induced" standard is inconsistent with the regulations and

a fair reading of the statute, we reverse on nearly all of the2

disclaimers.

On April 28, 1989, Louise S. Monroe died at the age of 91,

l eaving a multimillion dollar estate. J. Edgar Monroe (Monroe),

her husband, became executor of the estate. Monroe, who was then

92 years old, sought help from Robert Monroe, his nephew, in

administering the estate. An estate tax return was timely filed in

March 1990. Edgar Monroe died in May 1990.

The Monroes had no children, but Louise Monroe's will made 31

specific cash bequests to extended family members, lo ng-time

employees, and friends, a s well as 4 bequests to corporate

entities. Louise Monroe also made bequests in trust to two

grandnieces and a grandnephew, giving each a treasury bond with a

$500,000 face value. Monroe was the residual beneficiary of his

wife's estate.

The will called for each be quest to bear its portion of the

death taxes. Touche Ross, the accounting firm retained by the

estate, also determined that generation-skipping transfer taxes

would have to be borne by some of the individual legatees. The tax

impact on the legatees under these circumstances would be

substantial, amounting in some cases to 75%-80% of the individual

bequests. However, projections showed that tax liability was

significantly reduced if legatees disclaimed their legacies.

Deeply concer ned about the high tax burden on the individual

bequests, Monroe and Robert Monroe decided to pursue disclaimers as

a means of reducing the overall federal tax liability. Before

requesting the disclaimers, Monroe received assurance from Touche3

Ross that he could independently make gifts to the legatees and

include bequests to them in his own will . The accountants also

a dvised Robert Monroe that a disclaimer was only valid if it was

done without the promise of anything in return.

With assistance from the accountants, Monroe and Robert Monroe

identified 29 legatees to approach about renouncing. Robert Monroe

rehearsed wit h one of the accountants his presentation to the

legatees. In substance, Robert Monroe made the following points:

his uncle was upset about the amount of taxes that would have to be

paid by the estate and the legatees; each bequest would be

significantly reduced by taxes; his uncle would like each legatee

to disclaim his or her bequest; each legatee who disclaimed would

be giving up a right; and any disclaimer had to be voluntary and

without consideration.

Monroe personally asked Kathleen Gooden Hayward, Monroe's

grandniece and one of the legatees of a $500,000 treasury bond, as

well as four household employees to give up their bequests. Robert

Monroe made some version of his presentation to the remaining 24

l egatees on the list. In December 1989, each of the 29 legatees

signed a disclaimer, conceded by the Commissioner to be valid and

effective under Louisiana law. The total amount disclaimed was

$892,781, and this amount was included in the marital deduction on

the estate tax return as money which passed to Monroe.

In late December 1989 and January 1990, Monroe wrote each of

the disclaimants a personal check in an amount approximately equal

to the gross amount of the bequest renounced. Each check bore the4

notation "gift." Inadvertently, Monroe failed to file a 1989 gift

tax return for the December 1989 gifts. However, in 1991, a timely

g ift tax return was filed covering all the gifts made in January

1990, and an amended gift tax return was filed for the 1989 taxable

year.

After an audit, the Commissioner disallowed the marital

deduction claimed in the estate tax return, reducing it by the

amount of the 29 disclaimers and by the generation-skipping

transfer taxes associated with the three in-trust bequests. The

Commissioner determined that the disclaimers were invalid and that

the generation-skipping transfer taxes should be charged t o the

estate residual and not to the particular bequests. The

Commissioner also applied a fraud penalty.

On the estate's petition for redetermination, the Tax Court,

although noting t hat each disclaimer was motivated by different

factors, analyzed the disclaimers as a group, citing only a few

examples. The Tax Court summarized the motivation for the

disclaimants' actions as follows:

Some of the disclaimants were told by the nephew that Monroe

had always taken care of them and had never cheated them or

that Monroe was a generous man. Many of the disclaimants

anticipated that Monroe would continue to care for them

financially or was likely to make a bequest to them in his

will. Some disclaimants believed that executing the

disclaimer would be in their best long-term interest, because

they did not wish to upset Monroe by refusing to renounce.

The Tax Court agreed with the Commissioner on 28 of 29

disclaimers and, although it denied a fraud penalty, on the

imposition of a negligence penalty. The Tax Court concluded that

the disclaimers were not "qualifi ed disclaimers" under I.R.C. §1 A "qualified discl aimer" must also be in writing, must be

received by the transferor within 9 months of the transfer or when

the disclaimant reaches age 21, and must result in the interest

passing to a person other than the discla imant without any

direction by the disclaimant. S ee I.R.C. § 2518(b). None of these

requirements is contested by the Commissioner.

In addition, although § 2518 is a gift tax section, §

2046 makes it apply to disclaimer s of legacies and

inheritances as well.

5 2518(b). The resulting deficiency was $625,552.73, plus a

negligence penalty of $125,104.55. The taxpayer appealed.

II. THE TAX COURT DECISION

When a legatee, other than a surviving spouse, makes a

qualified disclaimer that caus es the surviving spouse to be

entitled to the property, the disclaimed interest is treated as if

it passed directly to the surviving spouse. See Estate Tax Regs.

§ 20.2056(d)-1(b). An estate may take a marital deduction for

property passing directly from the decedent to a surviving spouse.

See I.R.C. § 2056(a). Thus, the estate's marital deduction depends

on whether the 29 disclaimers at issue are qualified disclaimers;

the generation-skipping tax imposed on three of the bequests does

not apply if qualified disclaimers were made.

Section 2518(b) provides that "the term "qualified disclaimer'

means an irrevocable and unqualified refusal by a person to accept

an interest in property but only if

... (3) such person has not

accepted the interest or any of its benefits...." 1

In concluding that all but one of the disclaimers were not

qualified within the meaning of § 2518, the Tax Court reasoned that

the disclaimants6

expected, for one reason or another, that they would receive

their renounced bequests in the form of a gift or legacy from

Monroe. Furthermore, the testimony of many of the

disclaimants suggests that they feared what woul d happen if

they refused to renounce their bequests.

...

The disclaimants may not have explicitly negotiated with or

bargained with Monroe or the nephew for consideration in

return for executing their disclaimers. Each of the

disclaimants other than Helene Tebo, however, was induced or,

in some instances, coerced, into execut i ng a disclaimer.

Under these circumstances, the consideration for their

disclaimers was the implied promise that they would be better

off if they did what Monroe wanted them to do than if they

refused to do so. Their disclaimers thus were not

"unqualified" as required by section 2518.

The Tax Court analyzed the 29 disclaimers as a group, citing

excerpts of trial testimony from three disclaimants as

"representative of that of a majority of the disclaimants." First,

the Tax Court cited the testimony of Lawrence Lee, who had served

as a butler and chauffeur to the Monroes since 1949. Lee renounced

a specific bequest of $50,000 as well as a bequest in the amount of

his annual salary, or $10,000. Approximately three weeks later, he

received a check from Monr oe for $60,000 bearing the notation

"gift." Lee testified in part:

Q. What did he [J. Edgar Monroe] ask you?

A. He asked us to renounce, give it—turn it over to him.

Q. Did he say why?

A. No, I don't think. I can't remember exactly for what reason,

other than to turn it over to him, and he would take care of

it.

Q. He would take care of you if you turned it over to him.

A. Yes.

The Tax Court also relied on the testimony of Betsy7

Richardson, a niece of the Monroes. Before Louise Monroe's death,

Richardson's daughter, Lisa, had been sick with cancer, and Monroe

had paid $10,000 toward Lisa's treatment as well as $10,000 upon

her high school graduation. At trial, Richardson testified why she

renounced a $5,000 bequest from Louise Monroe:

Q. Why did you ultimately decide to sign the act of renunciation?

A. Because, like I said, I didn't know if I would need help for her

[Lisa] later, and you just—you don't go against Edgar if you

ever want anything from him.

The Tax Court also cited testimony from Kathleen Hayward,

Monroe's grand niece. Hayward disclaimed her right to income from

the $500,000 bond bequeathed to her in trust. Hayward's children

also executed disclaimers of their rights to the principal upon her

death. With a market value of $535,781, this legacy represented

more than half of the total amount disclaimed. Testifying that she

thought of the Monroes as her parents, Hayward described a long,

consistent pattern of the Monroes' generosity toward her. After

Hayward's first marriage ended, Louise Monroe bought a ho use for

Hayward and provided an allowance that allowed Hayward to stay at

h ome with her three children. The Monroes also provided a trust

fund that paid for the education of Hayward's children.

After Louise Monroe die d, Robert Monroe approached Hayward

about t he renunciation. She also talked with Monroe about

renouncing. By the time of her aunt's death, Hayward was better

off than her sister and brother, who were also beneficiaries of

bequests in trust of $500,000 bonds. Hayward was, accordingly,

better able to handle the loss of her legacy. Hayward talked over2 Although the Tax Court's excerpt stopped there, Hayward went

on to testify on redirect:

Q. I would just want to make it clear, Kathy. Did your uncle say

anything to you when he was asking y ou to renounce that led

you to believe that he was going to make a gift to you within

two weeks after this event?

A. No. No, certainly not.

* * *

Q. What did you—do you recall what you told Ms. West [attorney for

the Commissioner] then regarding whether you would get

something from Edgar in the future, your Uncle Edgar?

A. My assumption was that he would probably leave it to me in his

will.

Q. But nothing was said to—

A. No.

Q. Why did you assume that?

A. Because he knew that Auntie—that was a request from Auntie, that

she wanted me to have that money, and I felt that he would

honor that request in his will; that at this point he needed

the cash, but he didn't have it, and he would at some point in

his will—that was my thought, that in his will I would be

remembered.

8 the idea with her husband and with an attorney, who cautioned her

that she was giving up a righ t. After stating that she received

nothing in exchange for her disclaimer, was not promised anything

by Robert or Edgar Monroe, and had no agreement that Edgar Monroe

would do anything for her later, Hayward gave the testimony seized

upon by the Tax Court:

Q. Isn't it true that you told the agents that you knew from the

conversation with J. Edgar Monroe that you would get the

inheritance money, if not shortly after renouncing the

bequest, then in his will?

A. He didn't state that. I sort of certainly assumed that. 2Q. Would it have made any difference to you if you would have not

received the money?

A. No. I am in a position now that I really don't need it. I may

have—well, I can't say totally no. I may have not been real

happy. I probably would have been hurt. My feelings would

have been very hurt, but I am lucky. I am very lucky.

9 The Tax Court next highlighted testimony from Robert Monroe.

He stated that he had not bargained with the disclaimants and had

not made any promises that Edgar Monroe would make payments to the

legatees in return for the disclaimers. On cross-examination, he

was asked why he mentioned his uncle's generosity as a part of his

presentation to the legatees:

Q. What has generosity got to do with disclaiming on the part of a person being disclaimed in favor of it?

A. It puts into perspective the fact that someone is asking you to

do something and he's not promising you anything. He's not

giving you anything, but at least you're identifying what type

of person he is or was, anyway.

Focusing upon this testimony, the Tax Court concluded that Robert

Monroe

intended to buttress the legatees' confidence in Monroe's

continued generosity....

The nephew's testimony demonstrates that he intended to inform

the disclaimants that the probability that they would receive

something from Monroe in the future was good. Conversely, if

the legatees refused to disc laim, they were unlikely to

receive anything from Monroe subsequently, because their

refusal would be against Monroe's wishes.

Thus, the Tax court concluded that the disclaimers were not

"unqualified" within the meaning of § 2518, and that the subsequent

payments by Monroe were not "merely part of a pattern of

generosity" but were in return for the execution of the

disclaimers.10 III. THE PARTIES' CONTENTIONS

On appeal, the estate contends that the Tax Court confused the

two tests for acceptance of a disclaimed interest wit hin the

meaning of § 2518(b)(3). The estate relies on the Treasury

Regulations interpreting § 2518(b)(3):

A qualified d isclaimer cannot be made with respect to an

interest in property if the disclaimant has accepted the

interest or any of its benefits, expressly or impliedly, prior

to the disclaimer. Acceptance is manifested by an affirmative

act which is consistent with ownership of the interest in

property.... In addition, the acceptance of any consideration

in return for making the disclaimer is an acceptance of the

benefits of the entire interest disclaimed.

Gift Tax Regs. § 25.2518-2(d)(1). The estate argues that this

regulation sets up two distinct ways that the disclaimer can be

"unqualified": by a legatee's explicitly or implicitly accepting

the interest or its benefits before making the disclaimer, or by

his receiving consideration in return for making the disclaimer.

Accordingly, since the Commissioner has not argued that the

disclaimants accepted the benefits of their legacies prior to

executing the disclaimers, the only issue i s whether the

disclaimants received consideration for making the disclaimers.

The Estate further argues that the Tax Court invalidated the

dis claimers based on evidence of the disclaimants' motive or

expectation and not based upon evidence that the disclaimants

received valid consideration for executing the disclaimers. Belief

tha t one will be the beneficiary of future gifts by Monroe or be

remembered in M onroe's will is insufficient to establish

consideration in the absence of some actual promise or agreement to

provide such future benefits. In support, the estate cites P hilpot11

v. Gruninger, 81 U.S. (14 Wall.) 570, 577, 20 L.Ed. 743 (1872),

where the Supreme Court observed:

There is a clear distinction sometimes between the motive that

may induce to enter into a contract and the consideration of

a contract. Nothing is consideration that is not regarded as

such by both parties

... an expectation of results often leads

to the formation of a contract, but neither the expectation

nor the result is the [consideration].

In addition, the estate points to several private letter

ru lings that have approved disclaimers under § 2518 where the

disclaimants clearly expected that executing disclaimers would

benefit them in the long run. S ee LTR 9427030 (July 8, 1994). In

LTR 9427030, children and grandchildren of the decedent proposed to

disclaim their inte rest in an inter vivos trust, their residuary

interest in the decedent's will, and their rights to take under

Oklahoma's intestate succession laws. The decedent's surviving

spouse also proposed to disclaim her right to take under the

dece dent's will and the inter vivos trust, but not her right to

take by intestate succession. After the disclaimers were made, the

surviving spous e would take the entire estate through intestate

succession. The surviving spouse also proposed to execute an inter

vivos trust providing for essentially the same dispositions at her

death as were provided in the trust established by the decedent.

The I.R.S. concluded that the disclaimers met the requirements of

§ 2518(b):

You represent that there is no agreement, express or implied,

between the spouse and the children or grandchildren (or their

guardians) with respect to the creation of the trust or will

to be executed by the spouse and the proposed disclaimers to

be made by the children and grandchildren. You also represent

that the disclaimers are being made with the intent on the

part of the various parties to save Oklahoma estate tax.3 See also LTR 8701001 (Aug. 29, 1986) (substantial estate tax

savings resulting from disclaimers by minor grandchildren,

increasing the amount likely to be inherited by disclaimants, did

not amount to receipt of consideration in return for disclaimers;

expectancy of inheritance is purely speculative).

12 Accordingly

... we conclude that neithe r the potential

increase in the family wealth arising from the savings in

Oklahoma estate tax through use of the disclaimers described

above, nor the surviving spouse's execution of t he proposed

inter vivos trust, pour-over will, or durable general power of

attorney over property, w i ll constitute an acceptance of

consideratio n under s 2518(b)(3) by the children or

grandchildren in return for their making the proposed

disclaimers.

In another private letter ruling, LTR 9509003 (March 3, 1995),

a son, daughter, and three grandchildren executed disclaimers of

their respective legacies under decedent's will. As a result of

these disclaimers, the estate claimed an additional $3.2 million as

a marital deduction because the property disclaimed passed directly

to the decedent's spouse. The I.R.S. approved the disclaimers:

[I]t is represented that the re is no express or implied

agreement between the Spouse, Son, Daughter , and three

grandchildren regarding the ultimate disposition of the

disclaimed property . In the absence of an underlying

agreement, any expectancy Son, Daughter, and the three

grandchil dren may have in ultimately inheriting an enhanced

estate from either a parent or a grandparent is purely

speculative. Accordingly, we conclude that although the five

disclaimants have acted in concert in making the disclaimers

in order to reduce the estate tax liability of the Decedent's

estate, such action does not constitute the acceptance of any

consideration in return for the making of a disclaimer within

the meaning of s 25.2518-2(d)(1). 3

The estate als o cites cases evaluating the meaning of gifts

under I.R.C. § 170. In E state of Wardwell v. Commissioner, 301

F.2d 632 (8th Cir.1962), the appeals court reversed a Tax Court

decision denying a charitable gift deduction to an invalid who made

a substantial contribution to a nursing home the day before she was13

granted admission. The Tax Court concluded that the timing of the

payment the day before her admission led to an inference that her

donation was made with an expectation of benefit that disqualified

it as a charitable deduction. Id. at 637. The court noted that

Motivat ion and expectation do not destroy the reality and

genuineness of a bona fide transaction. Nor is a contribution

or gift, absolute in form when made, invalidated by reason of

conditions arising subsequent to the making thereof.

Id. at 636 (citations omitted). The Court relied on the

unambiguous written subscription agreement to conclude that her

donation did not give her a "legally enforceable right to room

occupancy." I d. at 637-38. S ee also Dowell v. U.S., 553 F.2d

1233, 1238-39 (10th Cir.1977) (affirming Tax Court conclusion that

donation to nursing home qualified as tax-deductible gift despite

the Commissioner's argument that the donation entitled the donor to

"substantial residency benefits").

Finally, the estate faults the Tax Court for generalizing

about the existence of implicit agreements between Monroe and the

legatees rather than determining if each individual had executed an

"irrevocable and unqualified" disclaimer without accepting any

consideration in return. By its terms, the estate contends, §

2518(b) requires a reviewing court to eva luate each disclaimer

individually.

In response, the Commissioner rejects the estate's view of the

app licable regulations, arguing that the statute is broader than

the regulations. Even if the disclaimants did not receive what

amounted to legal consideration in return for disclaiming, under

the plain meaning of the statute, the disclaimers w ere not14

"irrevocable and unqualified": they were not irrevocable because

the legatees received the substance of the bequests through

Monroe's "gifts" and they were not unqualified because the legatees

were induced or coerced into executing the disclaimers.

The Com missioner accuses the estate of reading out the

"irrevocable and unqualified" requirement of the statute by

focusing on the regulations which interpret § 2518(b)(3). The

Commissioner does not attempt to de fine an "irrevocable and

unqualified" disclaimer. However, the Commissioner contends that

a disclaimant's expec t ation that falls short of actual

consideration may nonetheless invalidate a disclaimer as not being

"unqualified" within the meaning of § 2518(b).

The Commissioner also urges that, although not relied on by

the Tax Court, the step-transaction and substance-over-form

doctrines support the Tax Court's interpretation of the events.

See Minnesota Tea Co. v. Helvering, 302 U.S. 609, 613, 58 S.Ct.

393, 394-95, 82 L.Ed. 474 (1938); Kanawha Gas & Utilities Co. v.

Commissioner, 214 F.2d 685, 691 (5th Cir.1954). The Commissioner

views this as one grand scheme to avoid paying taxes that were owed

under Louise Monroe's will.

Furthermore, the Commissioner counsels against reliance on its

private letter rulings as precedent. See Transco Exploration Co.

v. Commissioner, 949 F.2d 83 7, 840 (5th Cir.1992). The

Commissioner also argues that the rulings relied on by the estate

can be distinguished. First, each ruling presumed there was no

express or implied agreement that anything would be given to the15

legatees in return for executing the disclaimer, whereas the Tax

Court found an implicit agreement between Monroe and 28 of the 29

l egatees. Second, the legatees' receipt of essentially the same

amount as their bequest within a few weeks of the disclaimers

further distinguishes this case from the favorable letter rulings.

The Commissio n er also distinguishes the gift cases under

I.R.C. § 170, arguing that the section itself embodies a

consideration requirement.

Finally, the Commissioner defends the Tax Court's global

treatment of the disclaimers, because the decision to invalidate

the disclaimers rested less on th e legatee's motivations than on

the alleged representation that Monroe would "take care of" the

legatees if they disclaimed and on Monroe's making gifts so soon

after the disclaimers were executed.

IV. DISCUSSION

The Tax Court's findings of fact are reviewed under the

clearly erroneous standard and its conclusions of law are reviewed

de novo. S ee H ouston Oil & Minerals Corp. v. Commissioner of

Internal Revenue, 922 F.2d 283, 285 (5th Cir.1991). The clearly

erroneous standard does not apply, ho wever, when the Tax Court's

fact findings are predicated on an incorrect legal standard. See

Houston Oil & Minerals Corp. v. Commissioner of Internal Revenue,

922 F.2d 283, 285 (5th Cir.1991).

If the disclaimers in this case fail to meet the requirements

of § 2518, it is either because they were not "irrevocabl e and

unqual ified," or because the disclaimants had "accepted the16

interest or any of its benefits." The Treasury regulations further

explain that acceptance of the interest within the meaning of §

2518(b)(3) includes not only explicit or implied acceptance of the

interest or any of its benefits, but also the receipt of

consideration in return for executing the disclaimer. See Treas.

Reg. § 25.2518-1(d)(1).

3 Unqualified means "not modified by reservations or

restrictions." I d. Under the plain meaning of the statute, an

"irrevocable and unqualified" disclaimer is a relinquishment of a

legal right that is incapable of being retracted or revoked by the

disclaimant and is not modified by reservations or restric tions

that limit its enforceability. None of the written disclaimers

challenged by the Commissioner can be attacked as being subject to

revocation or subject to some condition: the documents executed by

the disclaimants are irrevocable and unqualified on their face.

Monroe's gifts, given after the disclaimants renounced their

b equests, do not change the irrevocability of the disclaimers:

once executed, the disclaimers were effective to give up the

legatees' rights to their respective bequests from Louise Monroe's

estate. The Commissioner, unlike the Tax Court, seems to be

implying that the legatees actually revoked their disclaimers by

accepting the gifts from Monroe. But even if the disclaimants

subsequently received and accepted a payment from Monroe, the

Commissioner has not demonstrated how such acceptance affects the

enforceability of the previously executed disclaimer. The

disclaimants still had no right to such a payment from the estate17

or from Monroe. Thus, the disclaimers were not revoked.

But irrevocability is a side issue. The real bone of

contention is whether the disclaimers we r e "unqualified", and

whether unqualifie d has some meaning beyond the possibilities

carefully delineated in the applicable Treasury Regulations. None

of the written disclaimers articulates any kind of di sabling

qualification, of course. Nevertheless, the Tax Court and the

Commissioner assert that because all but one of the d isclaimants

"expected," because they were "induced" or "coe rced" by Monroe,

that they would eventually receive their bequests in the form of a

gift or legacy, their renunciations were "qualified" to the extent

of the expectation. As the Tax Court later put it, a disclaimer is

not "unqualified" if it rests on an "implied promise" that the

disclaimant w ill be better off executing the disclaimer than not

doing so. Further, according to the Tax Court, the "implied

promise" may exist even though the disclaimants did not negotiate

or bargain with Monroe for later recompense.

We disagree with this interpretation of "unqualified." It is

inconsistent with a holistic reading of section 2518(b), contrary

to the governing Treasury Regulations and the Service 's letter

rulings, and intolerably, unnecessarily vague.

Section 2518(b) describes a covered disclaimer as one which is

"unqualified

... but only if [the disclaimant]

... has not accepted

the interest or any of its benefits." A "qualification,"

therefore, would seem to depend on the tangible receipt of

property, i.e., the "interest or any of its be nefits." That is18

also the most sensible understanding of an unqualified disclaimer.

One who disclaims an interest in property must do so without

getting something in exchange; and since property has been given

up, it follows that a "qualified disclaimer" would be one in which

the renunciation is not complete because property has been kept or

received in return.

The Commissioner and Tax Court would eliminate this statutory

symmetry by holding that a disclaimer of property is "qualified"

even though something less than property, e.g. an "expectation" or

"implied promise", is received in return. While their reading

would enhance the government's ability to disqualify disclaimers,

it also rests on an incomprehensible subjective standard. How

likely is it, in tax terms, that people would disclaim "a bird in

the hand" purely altruistically? Yet the clear inference to be

dra w n from the Tax Court's approach to this case is that a

"qualified disclaimer" de mands no less than disinterest in the

"property or its benefits." The court voided all of the

disclaimers here except that of Ms. Tebo, who acted solely for

personal reasons in executing a disclaimer. On the contrary, as

the Service's letter rulings indicate, a primary purpose of the law

authorizing qualified disclaimers is to facilitate post-mortem

estate tax planning and to increase family wealth on the

"expectation" that there will thus remain more wealth to pass on to

discl aimants in the future. Consequently, if the Tax Court's

subjective interpretation of "unqualified" disclaimer is accepted,

it undermines the very purpose for which the provision was enacted.19

It also ensures litigation in virtually every disclaimer situation,

because it can be assumed that heirs and legatees rarely execute

disclaimers for tax purposes without having had some "expectations"

or "inducements" based on convers ations with advisers on the

prospective benefits of such a course of action.

Not only does the statutory language conflict with the Tax

Court's interpretation of an "unqualified disclaimer," but the

Treasury Regulations are also incompatible with the "expectation"

or "implied promise" theory. This is not to say that we are

required to enforce Treasury Regulations instead of the statute,

but rather, that the regulations mirror the correct understanding

of the statute better tha n the Commissioner's and Tax Court's

presen t positions. The regulations set forth two situations in

which a disclaimer expresses a mere qualified refusal to accept an

interest in property: when the disclaimant accepts, expressly or

impliedly, the interest or any of its benefits; and when the

disclaimant receives "consideration" in return for execut ing the

disclaimer. Treas. Reg. § 25.2518-2(d)(1). Consistent with our

interpretation, a disclaimant cannot pu rport to disclaim, while

taking actual advantage of the property "or any of its benefits."

Further, the disclaimant cannot accept "benefits" from the property

by receiving considerati on in exchange for the disclaimer. The

juxtaposition in the regulation between the "implied" acceptance of

the interest or any of its benefits and the "consideration" that

must be received in exchange for a disclaimer is not accidental.

One may impliedly accept the benefits of property, for instance by20

pledging it as security for a loan, and therefore act

inconsistently when making an alleged di sclaimer. On the other

hand, only by receiving "consideration" in the classic sense does

one receive "property" or any of its benefits in exchange for

executing the disclaimer. We thus agree with the estate that to

have accepted the benefits of a disclaimed interest, the

disclaimant must have received actual consideration in return for

renouncing his legacy.

A disclaimant's mere expectation of a future benefit in

return for executing a disclaimer will not render it "unqualified."

"Consideration", used deliberately in the regulations, is a term of

art. S ee Philpot v. Gruninger, 81 U.S. (14 Wall.) 570, 577, 20

L.Ed. 743 (1872); Fire Ins. Ass'n v. Wickham, 141 U.S. 564, 579,

12 S.Ct. 84, 88, 35 L.Ed. 860 (1891) (to constitute consideration,

promise "must have been offered by one party, and accepted by the

other, as one element of the contract"). This is the way the

regulations are wri tten, and it is consistent with the

Commissioner's letter rulings, which are properly cited as evidence

of how the Commissioner has interpreted the law in the past. See

Transco Exploration Co., 949 F.2d at 840. In each of the three

rulings cited above, the obvious expectation that the disclaimant

would be better off in the long-run by renouncing his interest in

favor of the decedent's spouse did not violate the bar against

acceptance of the disclaimed interest or its benefits. S ee LTR

8701001, LTR 9427030, and LTR 9509003, supra. In one letter

ruling, the surviving spouse proposed to set up an inter vivos21

trust calling for the same distributions at her death as were

provided in the trust established by the decedent. S ee LTR

9427030. In each case, the Commissioner cited the lack of an

agreement between the parties as to what the disclaimants were to

receive in the future. The Commissioner implicitly recognized the

distinction between the expectation that renouncing is in the

disclaimant's bes t interest and an expectation that rises to the

level of c onsideration. The charitable contribution cases also

recognize this distinction. See, e.g., Wardwell, 301 F.2d at 638

("Motivation and personal expectation do not destroy the reality

and genuineness of a given transaction, even in tax cases"). Thus,

the question for each disclaimer is whether the decision to

disclaim was part of mutually-bargained-for consideration or a mere

unenforceable hope of future benefit, whether that unenforceable

hope springs from family ties, long-term friendship or employment,

or a generalized fear that benefits will be withheld in the future

absent execution of the disclaimer.

Accordingly, we also agree with the estate that the Tax Court

was required to evaluate each disclaimer under the requirements of

§ 2518. The statutory requirements are applicable to each interest

disclaimed. The estate submitted documentary evidence supporting

all 29 disclaimers and testimony regarding all but two. Although

the Tax Court singled out Helene Tebo, finding that she disclaimed

her bequest for personal reasons, its opinion lumps the remaining

28 disclaimers together. As the Commissioner argues, the Tax Court

may have focused on al leged inducement and/or coercion of the22

disclaimants by Robert and Edgar Monroe, rather than on each

legatee's motivation for disclaiming. But the correct standard

requires a finding whether there wa s actual bargained-for

consideration for the disclaimers.

The rehearsed presentati on by Robert Monroe does not in

itself support a finding that t here was consideration. He

explained the est ate tax problems created by the decedent's will

and how executing the disclaimers would affect the distribution of

propert y. He informed the legatees that they were giving up a

right and that he cou ld not promise them anything in return for

that. The only potentially questionable part of the presentation

was the reference to his uncle's generosity. The Tax Court found

that the intent of this statement was

to inform the disclaimants that the probability that they

would rec eive something from Monroe in the future was good.

Conversely, if the legatees refused t o disclaim, they were

unlikely to receive anything from Monroe subsequently, because

their refusal would be against Monroe's wishes.

Even assuming that the Tax Court correctly ascertained Robert

Monroe's intention, his statements merely reminding the

disclaimants of Monroe's history of generosity, without

demonstrating that the individual legatee did or could reasonably

be expecte d to interpret such a reminder as a promise, do not

invalid ate the disclaimers. It is only where the evidence

indicates tha t Robert or Edgar Monroe went further than this

rehearsed presentation, or that a particular legatee interpreted4 The Tax Court repeatedly implies that "threats" could create

"consideration" for a renunciation of a legacy. We leave that

que stion for another day, although the idea appears incompatible

w ith a focus on consideration for a disclaimer. There is no

evidence that any legatee was coerced into executing a disclaimer.

5 He testified that "[Edgar Monroe] didn't make any promises.

I didn't know whether I was going to get anything or not. Can't

23 this as a promise, 4 that the Tax Court's findings mig ht be

supported. Furthermore, even if the record shows that Robert or

Edgar Monroe went too far in their representations to a specific

legatee, that does not support a generalization applicable to other

disclaimants.

Turning to an evaluation of the record relevant to each

disclaimer, we conclude that for the majority of the disclaimants,

the evidence as a matter of law does not support a finding of any

agreement that would amount to consideration for the execution of

the disclaimers. The duty to defer to the Tax Court's findings of

fact applies only insofar as the Tax Court correctly applied the

law, which it did not do here. And in any event, with regard to

most of the disclaimers, there is no specific evidence other than

that which only supports a finding that the disclaimers were made

without consideration.

In addition to testimony indicating that they were made no

promises and that they understood that they were giving up any

right to claim something from Louise Monroe's estate, many legatees

testified to some personal reason inconsistent with improper

inducement or coercion by Monroe. These are the disclaimers

executed by Clarence Landry, 5 groundskeeper for 14 years ($14,350);say, you particularly what I was going to get. I could end up with

nothing, because I signed for nothing."

6 Although McDonald, who was 84 at the ti me he testified at

trial, said that he did not really understand what the renunciation

said, he also testi fied that he discussed it with his niece, he

understood that he was giving up the money given to him by Louise

Monroe, he did so voluntarily, he had no recollection of anyone telling him h e would get something for disclaiming his interest,

and he could not remember specifically why he signed the

renunciation.

7 Conway showed the disclaimer to her son, who explained to her

that she would be giving up her right to inherit under Louise

Monroe's will. She testified that "I have faith in Mr. Monroe if

I was entitled to whatever it was, I am sure I would get it," and

that "when you work for a person as long as I have worked—you know,

I have worked f or them, you just have faith in people, and I had

faith in [Edgar Monroe]." Under questioning from the Court, Conway

testified that she did not know what would happen i f she did not

sign the disclaimer: "I just didn't give that a thought. I really

didn't."

8 The Monroes were so generous in putting her children through

college that Carol Monroe was "deeply grateful" and renounced her

bequest as "a way of pa ying back a debt that I felt." After

executing the disclaimer, she put the matter "totally out of my

mind after that, to the point that I didn't remember how much had,

you know, been given to me."

9 When the Monroes sold their Newport residence, they created

a trust fund to take care of Jameson. Jameson had passed away as

of the trial, and Robert Monroe testified that he made no bargains

with Jameson in return for the disclaimer Jameson executed.

24 John McDonald

, 6 butler/chauffeur for 12 years ($8,975); Marie

Louise Conway, 7 household emp loyee for 19 years ($9,430); Carol

Monroe, 8 ex-wife of Robert Monroe ($5,000); Edward Jameson, 9

chauffeur for 27 summers in Newport, Rhode Islan d ($5,000);1 0 Fujii had died before th e trial. Robert Monroe testified

that he telephoned her in Japan to discuss the disclaimer. Fujii

did not commit to making the disclaimer right away, but discussed

the issue with her sister, Marilyn Monroe Wolf, before deciding to

renounce. Robert Monroe testified that he made no promises of any

future benefit in return for her disclaimer.

11 Fransen had died before the trial. Robert Monroe testified

that he made no promises of anything in return to Fransen for

signing the disclaimer. James Burke, the attorney who served as a

notary for Fransen's disclaimer, testified that Fransen signed the

disclaimer voluntarily and that he observed no explicit or implicit

promise on the part of Robert Monroe.

12 Mr. Farris was unavailable to testify at trial. He was one

of the four Mississippi household employees approached by Edgar

Monroe about the disclaimers. Robert Monroe, who was in the house

when Edgar Monroe talked to each of the employees, testified that

he did not observe any promises or threats being made to Farris to

get him to disclaim.

1 3 Robert Monroe testified that he approached Walmsley about the

disclaimer and that she voluntarily signed it without any promises

of future benefits.

1 4 Joseph P. Monroe was ill during the trial, but the parties

stipulated that he would testify in part that Robert Monroe "made

it clear to me that I was under no obligation to renounce. I

decided to execute a renunciation because I hoped that doing so would cause my Uncle Edgar to view me in a favorable light in the

future. I was never promised anything for my renunciation nor was

I given any commitment that any future gifts would be made by J.

Edgar Monroe. As J. Edgar Monroe had been very generous to me and

my family in the past, I simply felt that executing the

renunciation would be in my best long-term interest."

1 5 The parties stipulated that Joy Monroe would testify that she

executed the renunciation because her husband "advised me that he

was going to renounce his inheritance because he felt that it would

be in our best long-term interest. I chose to renounce the

inheritance because my husband asked me to."

25 Dor othy Fujii, 1 0 the Monroes' niece ($5,000); Beryl Fransen, 1 1

Louise Monroe's cousin ($75,000); Anthony Farris, 12 a gardener at

the Monroe's Mississippi home ($5,000); Miriam Walmsley, 1 3 daughter

of the Monroes' closest friends in New Orleans ($5,000); Joseph P.

Monroe, 14 Robert Monroe's brother ($5,000); Joy Monroe, 1 5 Joseph P.1 6 De la Vergne testified that "[Robert Monroe] said that there

was some problems with the income tax, and it would be better for

the estate if that was renounced. And since I certainly didn't

want to do anything t o hurt people who had been kind and nice to

me, I said I would be glad to." Robert Monroe did remind her that

Monroe was a generous man.

1 7 Marjorie Monroe Colomb, Monroe's niece, testified that she

renounced because Monroe "has been good to me too many years, and

h e has given me just so many things over the years. He has been

very kind, so what was this one thing?" She also testified that

Monroe had previously given her gifts of $10,000 "almost every

year; not quite." Monroe had also bankrolled her husband's failed

business. Colomb testified that she had not been promised anything

in return for her disclaimer.

1 8 Bennett testified: "My uncle Edgar has given so much to us that if he would have asked me to give anything up, I would have.

I just had that kind of respect for him." She talked it over with

a friend who was a lawyer: "And he had asked me if I understood

that I was not going—you know, that I am giving this money up, was

I crazy. And I told him, no, I was asked to do it, and I would.

And he says, Well, did they promise you, and I told him, no, they

couldn't promise me, and that I was doing this because I wanted

to."

26 Monroe's wife ($5,000); Beatrice de la Vergne, 1 6 distant cousin

($5,000); Robert Monroe ($5,000); Marjorie Monroe Colomb

($10,000), 17 and Teche Bennett ($5,000). 18

There was no evidence about the disclaimer in the amount of

$5,000 executed by Airline Animal Hospital other than the

renunciation document itself. From the four corners of the

document, there is no reason to doubt that it was executed

voluntarily and without consideration.

The remaining disclaimers involve at least some evidence that

Robert or Edgar Monroe may have gone further in their

representations than Robert Monroe testified was his rehearsed

presentation. Beginning with the largest disclaimer, that of the

Hayward family, including Kathleen Haywar d's renunciation of her1 9 Hayward's daughters, Cherie, Shannon, and Susanne Champagne,

also were the beneficiaries of cash bequests of $5,000 each. It is

undisputed that they disclaimed these bequests for the same reasons that they disclaimed their interests in the trust.

27 interest in the income from a $500,000 bond and her three

children's renunciation 19 of their interest in the trust principal,

the Tax Court cited her testimony on cross-examination that

although Monroe "didn't state that" s he would get her disclaimed

inheritance either during Monroe's lifetime or in his will, she

"sort of certainly assumed that" she would. Viewed in context,

however, this testimony furnishes no support for a finding of

actual consideration for executing disclaimers. First, each of her

adult children executed disclaimers of their interests in the trust

principal after being asked to do so by their mother. At a

minimum, their disclaimers, which represented the bulk of the

$535,781 present value of the bequest, warrants analysis separate

from that of Kathleen Hayward. It is apparent that an adult's

decision to renounce a bequest at the simple request of his mother,

without any indication that he was promised anything in return for

the disclaimer, does not take a disclaimer outside the strictures

of § 2518(b).

Second, turning to Hayward's statements, we are convinced that

it would be error to conclude that her assumption that Monroe would

honor her aunt's request in his will made her disclaimer in return

for an implicit promise from Monroe. Hayward did not testify that

Monroe explicitly or implicitly created this expectation. In fact

she testified that Monroe did not say that he would give her28

anything, that she renounced "[b]ecause my uncle was upset, and he

is very important to me, and I didn't like to see him like that,"

that she understood, upon the advice of an attorney, that Monroe

was under no obligation to give her anything, and that although she

"probably would have been hurt" had Monroe not remembered her in

his will, it would not have made a difference to her if she had not

received the money because "[she didn't] really need it."

Elizabeth Monroe Richardson, Monroe's niece with the daughter

who was ill with cancer, renounced her $5,000 bequest because "you

don't go against Edgar if you ever want anything from him." This

fear that she and her daughter mi ght not be the beneficiaries of

future support from Edgar if the bequest was not disclaimed

apparently arose from Richardson's prior dealings with Monroe,

because she d id not testify that anything said to her in the

discussions about the disclaimer indicated that Robert or Edgar

Monroe explicitly or implicitly threatened her with a loss of

future support. Although Richardson may have felt that irritating

Ed gar Monroe might jeopardize his future support, this does not

invalidate the disclaimer any more than a generalized expectation

that Monroe would be generous in the future if the be quest was

renounced. Absent some promise or agreement specifically related

to renouncing the bequest, an otherwise valid disclaimer should not

be invalidated.

Marilyn Monroe Wolf, a niece of the Monroes, testified that

Robert Monroe told her that because of estate taxes, she would only

receive $1,800 of the $5,000 left to her. However "it would go to29

my uncle tax-free if I did renoun ce, and that I would not be

promised anything in return for the renunciation; it was up to me

i f I wanted to do that or not." She decided to renounce because

the amount she would receive "was not a significant amount to me,

and since [Edgar Monroe] was upset about it, I wanted to keep him

happy, so I agreed to do it." Wolf wanted to keep Monroe happy

because "I had an expectation that I or my sons would be in his

will, and I didn't want to do anything to interfere with that."

However, she testified that she was not promised anything or "led

to believe she would get anything" in return for renouncing the

bequest. Wolf may have believed that she had a greater likelihood

of keeping her family in Monroe's will by executing the disclaimer,

but her expectation was not created by any promise or agreement

made by Robert Monroe. Accordingly, her disclaimer, like that of

Betsy Richardson, does not fall outside the scope of § 2518(b).

Finally, six of the disclaimers present fact issues which

must be reconsidered by the Tax Court in light of the correct

standard.

Lawrence Lee's testimony, excerpted earlier, indicates that

although he felt that Monroe made no promises or guarantees, Monroe

did say t hat "he would take care of it" or "take care of us [the

household employees]." Lee had worked for the Monroes for 40 years

as of Louise Monroe's death and renounced a bequest of $50,000 plus

his annual salary of $10,806. Lee was highly likely to trust and

rely on a ny implicit representation by Monroe. This is a close

case. Although Monroe made no specific reference to a gift or30

subsequent bequest, the circumstances of the representation require

further analysis based on the proper legal standard.

Judith Bazer, Monroe' s great, great niece, who renounced a

$5,000 bequest, executed an affidavit at the request of I.R.S.

agents. In the affidavit, she states that Robert Monroe told her

that "if we would give the money back by executing the disclaimer,

we would save on the taxes and my uncle (J. Edgar Monroe) would see

to it that we get the full amou nt of our inheritance." Judith

Bazer also stated in the affidavit that when Monroe later wrote her

the $5,000 check, "it was accepted as a gift, although I knew the

true purpose of the check." Judith Bazer also testified at trial

that Robert Monroe only told her that "[y]our uncle has taken care

of you, and he always will."

Rachel Bazer, who d isclaimed a $5,000 bequest, was present

when Robert Monroe spoke to her sister, Judith Bazer, about

renouncing.

Shane Bazer, great, great nep hew of the Monroes, testified

that he was not promised anything in return for his disclaimer of

a $5,000 bequest. However, the Commissioner presented testimony

from I.R.S. agent Raymond Gregson that Shane Bazer had told Gregson

in a prior interview that Robert Monroe said that Shane had a

better chance of receivi ng the full amount of the bequest if he

renounced.

Vivian Simmons, the Monroes' maid for four years, signed an

affidavit stating that Robert Monroe told her that "if I would sign

the disclaimer, J. Edgar Monroe would see to it that I would get31

the full amount of money willed to me from the estate."

Donatilda Harris, the Monroes' cook for over 50 years,

t estified that Robert Monroe asked her to renounce, stating that

"he would take care of us." On cross-examination, Harris admitted

telling I.R.S. agents on a prior occasion that she was told at the

time of her disclaimer that she "would receive the money that you

were disclaiming from J. Edgar Monroe."

Step-transaction/Substance-over-form

Finally, we disagree with the Commissioner's contention that

the Tax Court's decision should be affirmed on substance-over-form

or step-transaction grounds. While the disclaimants, to varying

degrees, may have thought they would eventually receive something

from Monroe, even the actual amount of their legacy, the evidence

shows that most really believed they were, in fact, giving up their

legacy under Louise Monroe's will. Several legatees sought outside

counsel before making the ir decision. As long as there was no

implicit agreement that they would receive something from Monroe in

return for their disclaimers, the fact that the legatees understood

they were givin g up their rights and actually did, in a manner

effective under Louisiana law, give up their rights is sufficient.

There is no evidence that any of the legatees who executed

disclaimers that we have held to be "qualified disclaimers" under

§ 2518(b) believed they were receiving thei r inheritance under

Louise Monroe's will when they received Edgar Monroe's gifts.

Accordingly, Monroe's subsequent gifts do not change the legitimacy

or legal effect of the legatee's renunciations.32 V. NEGLIGENCE PENALTY

Although the Commissione r conceded at trial that the fraud

penalty was inapplicable, she nonetheless argued for the imposition

of a 20% negligence penalty under I.R.C. § 6662(a). The Tax Court,

rejecting the estate's arguments, concluded that the estate could

not rely on the accountants' advice because Monroe had failed to

disclose material facts. In particular, the Tax Court felt that

without being told that Monroe intended to make gifts to the

legatees shortly after the disclaimers were executed, the

a ccountants could not properly advise him. Furthermore, the Tax

Court concluded that Monroe's honest disagreement related entirely

to interpretation of the facts and not of any unclear legal

principles.

The Tax Court erred. First, as we have already determined

that 23 of the 29 disclaimers were "qualified disclaimers" within

§ 2518(b), any addition to tax for negligence would be

proportionally reduced by the amount of understatement that results

when these disc laimers are once again included in the marital

deduction.

However, even with regard to the remaining disclaimers that

continue to pose factual issues, no negligence penalty should have

been or is warranted. Negligence is defined in § 6662(c) as "any

failure to make a reasonable attempt to comply with the provisions

of this title...." Monroe was advised by Touche Ross that gift

giving to the disclaimants was allowed, as long as no promises were

made to induce the legatees to renounce. Based on that advice, it20 Not only was Monroe significantly advanced in years, but he

had recently experienced significant health problems. In fact, he

was in a coma for a significant period of time while he was in his

80s. Monroe's decision to not delay in making the gifts proved

prescient: he died in May 1990, just five months after the gifts

were made to the legatees.

33 was not unreasonable for Monroe, who was 93 years old at the time

the disclaimers were made, to decide that the better course was to

make any gifts that he wished to make sooner rather t han later. 2 0

Fur thermore, the only additional advice that Monroe would have

heard had he told his accountants that he decided to make the gifts

was that, although it would not change the substance of the

transaction, it would make the transactions look more suspicious,

and might subject the estate's return to increased I.R.S. scrutiny.

Otherwise, the accountants testified that they would not have

changed the advice they gave. Thus, a prudent man, as defined by

the Tax Court, would have heard from his accountants that although

appearances would suffer from gift giving so soon after the

disclaimers, the actual legal status of the disclaimers would not

change. We doubt that a man in Monroe's position would or should

have been concerned about such appearances.

VI.

For the foregoing reasons, we REVERSE in part and REMAND for

reconsideration of the status of the disclaimers executed by the 6

named individuals.

REVERSED and REMANDED.

KING, Circuit Judge, dissenting:

This is a fact-bound case, hard facts that have now made bad34

law. In a three-day trial, the Tax Court heard twenty-three

witnesses, including seventeen of the twenty-nine disclaimants.

The court made findings of fact that the majority cannot hold to be

clearly erroneous, although much of the majority opinion amounts to

that. Instead, the majority invokes the rule that we need not

defer to fact-findings infected by an incorrect view of the law and

goes on to set out what it perceives to be the correct view of the

law: in determining whether a disclaimer is unqualified, "the

correct standard requires a finding whether there was actual

bargained-for consideration for the disclaimer[ ]." Majority Op.

at 160-61. Under the rule promulgated by the majority, only

"mutually-bargained-for consideration" will serve to disqualify the

disclaimer. Id. at 160. Neither the statute nor the regulations

impose such a requirement, and it creates ample possibilities for

tax evasion. Only the naive or the uncounseled will engage in

actual bargaining for the consideration to be received in exchange

for a disclaimer or, as is the case with the six disclaimants that

are the subject of the majority's reman d, will admit to it. I

respectfully dissent.

It is useful to summarize what happened here. J. Edgar

Monroe, the decedent's husband, and Robert J. Monroe, his nephew,

solicited and obtained disclaimers of specifi c bequests totaling

$892,781 fromtwenty-nine legatees under Mrs. Monroe's will.

Within days of the execution of the disclaimers, each disclaimant

received a check from Mr. Monroe for the amount of the disclaimed

legacy. It is apparent, and the Tax Court so found, that the1 Provisions in Mrs. Monroe's will, coupled with the applicable

tax law, operated effectively to impose the bulk of the estate and

generation skipping transfer taxes on the legatees. If the

legatees disclaimed, their bequests would fall into the residuary

estate, which, under Mrs. Monroe's will, passed to Mr. Monroe.

Provided the disclaimers were qualified within the meaning of

I.R.C. § 2518(b), Mrs. Monroe's estate could reduce its estate tax

burden by claiming the marital deduction for the amount of the

bequests and could elimina t e entirely the generation skipping

transfer tax. Mr. Monroe clearly hoped to spare the legatees the

tremendous tax burden they would bear if they took under the will

by paying them the full amount of the bequests himself, largely out

of the tax savings that inured to the estate, and therefore to Mr.

Monroe as the residuary legatee, as a result of redirecting the

bequests to the residuary estate.

2 Neither Mr. Monroe nor Robert Monroe told the accounting firm

responsible for the preparation of the estate tax return and for

the related estate tax advice t hat the gifts had been made. The

required gift tax return was not filed. The revenue agent who

initiated the audit of the estate tax return did not find out about

the gifts until April 1991 when, during the course of the audit, he

interviewed two of the donees, who told him about the gifts they

had received. The agent testified that he scheduled the estate for

audit because he thought it peculiar that employees of the Monroes

who were earning less than $10,000 a year had renounced bequests of

$50,000 each, plus one year's salary. Ironically, three of those

35 disclaimers and subsequent checks were not isolated events. They

were part of a well-intentioned plan to secure to the legatees the

amount of thei r bequests without diminution for the substantial

taxes—in many cases, the tax haircut would have been seventy-five

to eighty percent of the amount of the bequest—that would otherwise

have been chargeable to those bequests. 1 The legatees from whom

disclaimers were solicited were those who "had witnessed firsthand

and had felt" Mr. Monr oe's generosity. In soliciting the

disclaimers, Robert Monroe informed the legatees that taxes would

substantially reduce the amount of their legacies and that Mr.

Monroe was upset by the high taxes. Robert Monroe made a point of

remin ding the legatees that Mr. Monroe was a generous man. 2 Theemployees testified that Mr. Monroe or Robert Monroe had told them

that Mr. Monroe "would take care of it" or "see to it that [they]

would get the full amount of money willed to [them] from the

estate" and are subjects of the majority's remand.

36 Tax Court found that:

The disclaimants may not have explicitly negotiated with or

bargained with Monroe or the nephew for consideration in

return for executing their disclaimers. Each of the

disclaimants other than Tebo, however, was induced or, in some

instances, coerced, into executing a disclaimer. Under these

circumstances, the consideration for their disclaimers was the

implied promise that they would be better off if they did what

Monroe wanted them to do than if they refused to do so. Their

disclaimers thus were not "unqualified" as required by section

2518.

Tebo is an exception because we are persuaded by her

t estimony that she voluntarily and without expectation of

anything in return renoun ced her legacy for personal

reasons....

In addition, petition er has failed to persuade us that

Monroe's cash gifts to the 29 disclaimants were merely part of

a pattern of generosity that Monroe had engaged in throughout

his life. These "gifts" were all cash payments of specific

and substantial amounts made to the disclaimants shortly after

they executed disclaimers. The inference drawn from this

targeted gift-giving is that Monroe made them "in return" for

the disclaimants' renouncing their bequests and not from a

"detached and disinterested generosity." ... Even if Monroe

had no legal obligation to compensate the disclaimants, they

anticipated, and received, payments from him that left them in

the same economic position as if they had accepted the

legacies in the first place.

The majority tells us that consideration consisting of a

promise, the existence of which is fairly implied or inferred from

w hat is actually said and done, of a gift or bequest in the full

amount of the bequest disclaimed is not enough to disqualify a

disclaimer. Instead, the majority requires explicitly negotiated

or bargained-for consideration, presumably of the sort required to

s upport a contract. The consideration requirement that the37

maj ority imposes on disqualification of disclaimers is actually

more rigid than the consideration requirement in contract

formation. It is hornbook law that an implied promise constitutes

sufficient consideration to form a contract. S ee A RTHUR L. C O RBIN

,

C ORBIN ON C ONTRACTS § 144 (1963) ("If a promisor bargains for another

promise in return and gets it, he is bound. It makes no difference

that the return promise is implied from conduct or from language

that is not in the form of express promissory words. That is, it

makes no difference with respect to the question of sufficiency of

consideration."). Yet the majority holds that an implied promise

of remuneration such as the one found by the Tax Court in this case

is in sufficient to disqualify a disclaimer. As if that were not

enough, the majority also tells us that, because disclaimer entails

relinquishment of property, a disqualifica t ion "would seem to

depend on the tangible receipt of property," whatever that means.

Majority Op. at 159.

To summarize, the majority's conception of a disqualifying

disclaimer possesses three, perhaps four, distinguishing

characteristics. First, disqualification of a disclaimer requires

the existence of explicit negotiations or bargaining. Second, the

disclaimant must receive property, as distinguished from a promise

of property, in exchange for the disclaimer. Third, the property

received must consist of " "consideration' in the classic sense."

Majority Op. at 160. Fourth, because a check from Mr. Monroe in

the full amount of the disclaimed bequest received a few days after

the disclaime r would seem to constitute the kind of tangible3 Treas. Reg. § 25.2518(d)(1) tells us that "[a]c ceptance is

manifested by an affirmative act which is consistent wi th the

ownership of the interest in property." Exchanging a bequest from

Mrs. Monroe for a gift from Mr. Monroe can fairly be said to

constitute an act that is consistent with ownership of the bequest.

38 property consideration for the disclaimer that would sati sfy the

second and third facets of the majority's rule but somehow does

not, the majority's characterization of disqualifying disclaimers

may also require that the disclaimant receive the tangible property

before the disclaimer. The estate argues for this position, and

the majority arguably accepts it. All of these requirements result

from an overly restrictive and unwarranted reading of the statute.

Section 2518 of the Internal Revenue Code defines an

"unqualified disclaimer" as "an irrevocable and unqualified refusal

by a person to accept an interest in property but only if

... such

person has not accepted the interest or any of its benefits."

I.R.C. § 2518(b). The two statutory rationales for the Tax Court's

decision represent a fair reading of the statute. First, giving up

the bequest "in return for" a gift is akin to accepting the

benefits of the bequest. 3 Second, a refusal to accept a bequest

from Mrs. Monroe "in return for" a gift from Mr. Monroe is not an

unqualified r efusal. Contrary to the reading adopted by the

majority, the statute makes no mention of bargaining, tangible

property, consideration or an enforceable obligation, and there is

no warrant in the statute for compelling the Commissioner to

litigate over these matters when challenging a disqualification.

The majority supports its reading of the statute by misreading39

Treas. Reg. § 25.2518-1(d)(1) to require that a disclaimant

r eceive consideration in exchange for the disclaimer. As the

Commissioner points out, the regulation describes several

circumstances in which a disclaimant is deemed to have accepted the

benefits of a legacy, the last among them (or, in the words of the

regulation, "in addition" to the other circumstances listed in the

regulation) being where the disclaimant accepts consideration in

return for the disclaimer. The regulation cannot fairly be read to

require consideration before disqualifying a disclaimer.

The majority likens the p romise of gift or bequest implied

from Mr. Monroe's words and actions to a "mere expectation" or

unenforceable hope of future benefit and rejects the implied

promise along with the mere expectation. As the private letter

rulings make clear, in the absence of an express or implied

agreement, the mere expectation or hope that a disclaimant may one

day benefit from the disclaimed property (generally in the form of

an inheritance) is too speculative to form the basis for

disqualifying a disclaimer. But the crux of the inquiry is whether

there is an exp ress or implied agreement. Based on all of the

evidence before it, including evidence of the words and deeds of

Mr. Monroe and Robert Monroe, as well as the legatees' agreement to

disclai m, the Tax Court reasonably deduced that an implied

agreement existed between Mr. Monroe and the legatees. The Tax

Court cannot fairly be read to have based its decision on a "mere

expectation" or hope of future benefit on the part of the legatees.

F inally, the majority opinion contains a great deal of40

fac t-finding, and the majority fails to acknowledge it as such.

This case requires, first and foremost, credibility determinations

about the testimony o f Robert Monroe and the disclaimants,

determinations properly relegated to the Tax Court. The Tax Court

was not required to accept that testimony at face value, nor was it

required to go through each piece of testimony and say that the

court did not credit it. The Tax Court's opinion makes very clear

that the c ourt simply did not credit much of what it heard. We

overstep the bounds of our authority as appellate judges when we go

back thr ough an appellate record and make our own credibility

assessments about the witnesses' testimony. The majority opinion

errs in that respect.

As i s apparent from the majority opinion, no law addressing

factual scenarios even remotely similar to the facts at issue here

exists at the appellate level. The Commissioner accepts the

concept of post-mortem tax planning, and until now the rules have

been relatively clear. As Robert Monroe testified in the Tax

Court, "the per son renouncing ... can't receive a benefit for

signing a renunciation." As for a subsequent gift or bequest, in

Robert's words, "you just couldn't have a promise." The Tax Court

found as facts that the disclaimants received a benefit for signing

a renunciation, and that just such a promise existed. In order to

o verturn those fact-findings, the majority has now imported

concepts of explicit bargaining, consideration and tangible receipt

of property into a statute conspicuously devoid of them. I

respectfully dissent.41