T.C. Memo. 1999-181

UNITED STATES TAX COURT

ESTATE OF THEODORE J. CHAMBERLAIN, DECEASED, 

DALE CHAMBERLAIN, PERSONAL REPRESENTATIVE, Petitioner v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 2999-97. Filed June 1, 1999.

Joseph Wetzel, Gary R. DeFrang, and Russell A. Sandor, for

 petitioner.

Gerald W. Douglas, for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

BEGHE, Judge: Respondent determined a deficiency of

$201,551 in Federal estate tax of the Estate of Theodore J.

Chamberlain (decedent) and an accuracy-related penalty of $38,423

for negligence under section 6662(b)(1).
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Unless otherwise indicated, all section references are to

the Internal Revenue Code in effect at decedent's death, and all

Rule references are to the Tax Court Rules of Practice and

Procedure.

After concessions, including respondent's concession of the

penalty, the sole issue remaining for decision is whether, for

purposes of section 2518, decedent made a qualified disclaimer of

property having a value of $455,753, or of any other amount, that

otherwise would have passed to him from his predeceased spouse as

part of the residue of her estate. We hold that decedent did not

make a qualified disclaimer in any amount.

FINDINGS OF FACT

Some of the facts have been stipulated and are incorporated

herein by this reference. At decedent's death on February 26,

1994, he resided in Portland, Oregon. When the petition was

filed, the personal representative, Dale Chamberlain (Dale),

resided in Solana Beach, California. 

Decedent was predeceased by his wife of 50 years, June L.

Chamberlain, who died on December 7, 1992, at the age of 84. 

Decedent was appointed personal representative of Mrs.

Chamberlain's estate on February 5, 1993. He served in that

capacity until his death in February 1994 at the age of 87. 

Decedent and Mrs. Chamberlain had one child--Dale. 
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Decedent was a retired engineer who had spent most of his

professional career working for the water department of the City

of Portland. He had some responsibility for the design of the

present Portland water system. Mrs. Chamberlain had been a high

school language teacher. Although the Chamberlains were not

employed in highly paid positions, they lived frugally, saved,

and invested. As a result, they accumulated estates sufficient

to justify estate planning. 

In 1987, decedent and Mrs. Chamberlain hired the Portland

law firm of Meyer & Wyse to handle their estate planning and to

address their concerns about estate taxes. Roger Meyer and

Joshua Kadish, both partners at Meyer & Wyse, worked on the

planning and administration of the Chamberlains' estates, and the

firm of Meyer & Wyse was the principal legal counsel for both

estates. Mr. Meyer, the firm's senior partner, had known the

Chamberlains for many years and used to be their next-door

neighbor. 

In broad outline, the estate plans of decedent and Mrs.

Chamberlain were simple and consistent. Each wished the other to

receive all or the bulk of his or her estate, and that, after

both their deaths, Dale would inherit their property. 

On January 14, 1988, Mr. Kadish wrote to decedent and Mrs.

Chamberlain and explained the use of disclaimers as follows:
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1 The use of the term "mutual wills" does not imply that the

wills were executed pursuant to any type of contract. See McGinn

v. Gilroy, 165 P.2d 73 (Or. 1946); Dukeminier & Johanson, Wills,

Trusts & Estates 292 (3d ed. 1984).

At your request, we have revised our previous

drafts to include a so-called Family Residuary Trust. 

This trust could also be called a "bypass" or

"disclaimer" trust. As I explained to you over the

phone, it will allow the surviving spouse to analyze

the family financial situation for a 9-month period

following the deceased spouse's date of death. The

surviving spouse can then make a decision regarding how

much money it would be prudent to direct into this

trust for tax planning purposes. The 9-month period

gives the surviving spouse ample time to consult with

us and other financial advisers and to make a decision. 

This type of arrangement allows maximum flexibility in

formulating your estate plan. 

What Mr. Kadish was referring to, of course, was the use of a

disclaimer by the survivor of the first to die to cause an amount

in the predeceasing spouse's estate up to the amount of the

unified credit to pass for the benefit of Dale and thus reduce

the taxable estate of the survivor for Federal estate tax

purposes. 

Relying on Mr. Kadish's advice that they did not have to

decide during their lifetimes whether to use the unified credit

in their wills, on January 25, 1988, decedent and Mrs.

Chamberlain executed the mutual wills1 that Meyer & Wyse had

prepared for them. These wills were consistent with the points

made by Mr. Kadish in his January 14, 1988, letter. In her will,

Mrs. Chamberlain made a $75,000 specific bequest to Dale and
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bequeathed the residue of her estate to decedent, if he should

survive her. Her will provided, in the event of a disclaimer by

decedent, that the disclaimed portion of the residuary estate

would pass to the Family Residuary Trust. Under the terms of the

Family Residuary Trust, decedent would be entitled during his

lifetime to the trust's net income, as well as "such sums from

the principal of the trust as the Trustee deems necessary or

advisable for his health, education, support and maintenance to

enable him to maintain the standard of living which he maintained

in my lifetime" (the Support Power). At his death, the principal

of the trust was to be distributed to the descendants of decedent

and Mrs. Chamberlain. Mrs. Chamberlain's will provided that,

should decedent disclaim his interest in the Family Residuary

Trust, the disclaimed property would be distributed as if

decedent had predeceased her. With the exception of Mrs.

Chamberlain's specific bequest to Dale, decedent's will contained

provisions that mirrored the provisions of Mrs. Chamberlain's

will. 

Within a week after Mrs. Chamberlain's death on December 7,

1992, decedent informed Mr. Meyer of Mrs. Chamberlain's death,

and they began a series of conversations concerning Mrs.

Chamberlain's estate. In those conversations, decedent expressed

to Mr. Meyer his interest in minimizing the estate tax liability
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of Mrs. Chamberlain's estate in order to maximize the value of

the assets that would ultimately go to Dale.

On December 14, 1992, Mr. Meyer wrote the following in a

memo (Exhibit 4-D) to Mr. Kadish: 

June Chamberlain passed away December 7. I am

going to meet with Ted [Chamberlain] on Saturday

morning the 19th. Please review the file and let me

know what specific information, if any, we need. I

will try to get a listing of all property from him and

bank accounts. I understand everything is jointly

held. * * * 

Mr. Kadish wrote his response to Mr. Meyer on Exhibit 4-D, below

Mr. Meyer's text. Mr. Kadish asked Mr. Meyer to "Get a precise

list of all assets & debts and how they are held", reminded him

that "We have 9 mos to disclaim", and advised that "I believe

disclaimer of some types of jt property are now possible." 

Subsequently, Mr. Meyer accompanied decedent to the bank

to help him inventory the contents of decedent's and Mrs.

Chamberlain's safe deposit box. Decedent and Mr. Meyer organized

the contents of the safe deposit box according to the type of

ownership interest in each asset: Assets owned outright by

decedent; assets that had been held jointly by decedent and

Mrs. Chamberlain; and assets that had been owned outright by

Mrs. Chamberlain. 

Shortly after Mrs. Chamberlain's death, decedent became

preoccupied with his financial security and started taking a very

cautious approach to the management of his financial affairs. 
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2 On some of the duplicates, decedent added information in

blue ballpoint pen, but the additions are not material to the

issues in this case. 

Decedent became hesitant to take any action concerning his

financial affairs; such few actions that he did take were only

after extensive consultation with Dale, and decedent made very

few changes to his investments. Also, during 1993, decedent's

health deteriorated to the point where he could no longer care

for himself and required full-time help at home. However,

decedent's mental acuity remained unimpaired; he was competent to

execute a disclaimer at all relevant times. 

In late December 1992 and early January 1993, decedent

prepared 12 81⁄2 x 14 inch pages (Exhibit 5-E) on which petitioner

primarily relies to support the contention that decedent made a

valid disclaimer under Oregon State law and section 2518. 

Exhibit 5-E was found by Mr. Wetzel, petitioner's trial counsel

in this case, in the files of Meyer & Wyse, along with Exhibit 8-

H, discussed infra. After this discovery, petitioner asserted

that the pages found by Mr. Wetzel constitute decedent's written

disclaimer. Only 5 of the 12 handwritten pages in Exhibit 5-E

were originals--the remaining 7 pages were photocopies.2 Four

of the five original pages were handwritten by decedent on the

reverse side of "Meals-on-Wheels" menus; another page was
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handwritten and initialed by Dale on a sheet of paper from a

yellow legal pad. Moreover, although Exhibit 5-E comprises 12

pages, only 8 of the pages were different from each other (and 3

of those pages were photocopies)--the other 4 pages were

duplicates. 

Exhibit 5-E listed all property (consisting of securities,

bank accounts, and the family residence) that decedent: (1) Owned

outright; (2) was entitled to as surviving joint tenant; or (3)

would receive as part of the residue of Mrs. Chamberlain's

estate. Five of the pages contain information on marketable

securities, mostly bonds, and are organized by the months in

which interest payments were to be received. The first page, for

example, was entitled "JANUARY & JULY TALLY 1992". On each page,

decedent drew several columns to record information about each

security, including columns for the security name, account

number, payment date, par value, interest rate, maturity, and

location of the security. There was also a column in which

decedent marked each asset with a "T" "JT" or "J" to identify the

original source of the asset. Under the column headings,

decedent grouped the securities into 3 headings: Treasury,

coupon, and registered. The succeeding pages followed this same

approach but contained two tables on each page, each covering two

calendar months. The second page, for example, contained tables

entitled "1993 FEB & AUGUST TALLY" and "MARCH SEPT". None of the
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pages were signed, but decedent had initialed and dated the

bottom right corner of the first page "1/12/93". The following

is an example of the information presented in Exhibit 5-E for

treasury bonds paying interest in January and July 1992: 

JANUARY & JULY TALLY 1992

TREAS

Payment

Dates

Treas.

Amount

Time Account

No.

To Bank

T.D.

1/16/92 20K T.Bill 52 week 9900-xx WSNB JT

1/23/92 80k T.Bill 26 week 9900-xx WSNB JT

1/23/92 45k T.Bill 26 week 9900-xx WSNB J

1/30/92 45k T.Bill 52 week 4400-xx WSNB T

Total = 190k TREASURIES

On or around January 1, 1993, when Dale was in Portland for

the holidays, he sat down with decedent at the kitchen table to

discuss decedent's estate plan and reviewed the first 5 pages of

Exhibit 5-E. Decedent had prepared Exhibit 5-E, identifying

which assets had been Mrs. Chamberlain's property, which assets

were decedent's property, and which assets were jointly owned by

decedent and Mrs. Chamberlain, and discussed it with Dale as a

step in effectuating his estate plan. While reviewing Exhibit 5-

E, decedent told Dale that he planned to disclaim the assets that

were in Mrs. Chamberlain's name, which were marked on Exhibit 5-E

with a "J". On December 7, 1992, Mrs. Chamberlain's date of
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death, the assets marked "J" on Exhibit 5-E by decedent had a

fair market value of $257,745. Decedent failed to designate

$13,100 of assets listed in Exhibit 5-E and designated an

additional $48,247 and $29,818 worth of assets as "JT" and "T",

respectively, that were subsequently listed on Mrs. Chamberlain's

probate inventory ("Probate Inventory") (referred to collectively

with Exhibit 5-E as "the Documents") as being part of her probate

estate. 

During Dale's visit to Portland, he and decedent jointly

produced an additional 3 pages of Exhibit 5-E that reflect

decedent's and Dale's efforts to determine the total value of

decedent's and Mrs. Chamberlain's property. The first of these 3

pages, which is in decedent's handwriting, is entitled "TALLY". 

The top half of the page contains tables summarizing bank

account, stock, and credit union information, with details

similar to those found in the first 5 pages, such as account

number or security name, ownership interest or value, and an

identification of ownership. On the bottom half of the page,

under the heading "DEC. 1992", decedent summarized the values of

each type of asset in which he had an interest, such as

"Treasuries", "Stock", and "House", and calculated a total value

of $1,525,000. An additional page entitled "TALLY 12/29/92",

contains totals for treasury, coupon, and registered bonds and

appears to be the worksheet decedent used to determine the values
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3 The numbers "2" and "8" were circled and are decedent's

abbreviations for February and August.

of the 3 categories of bonds that he used to calculate his gross

assets. Both pages were initialed "TJC" and dated "1/1/93" in

the top right corner.

The third page was written on a piece of paper from a yellow

legal pad and is in Dale's handwriting, except the title "TOTAL

WORTH 1992" and page number, which are in decedent's. On this

page, under headings for "Treasuries", "Coupon Bonds",

"Registered Bonds", "Bank Accounts" and Stock", Dale listed

certain assets, identified them with a "T", "JT" or "J", and

listed their values. In addition to the $257,745 worth of assets

designated "J" by decedent, Dale designated an additional

$149,799 worth of assets on this page as "J" assets that decedent

had not previously identified as "J" assets. The top right

corner of this page had been initialed "DGC" and dated "1/1/93"

by Dale; it did not contain decedent's signature or initials. 

Throughout the pages of Exhibit 5-E, many items were marked or

circled in various colors of pen and pencil. Some of the pages

also bear reminder notes for decedent's use. For example, near

the bottom of the first page, in blue pen, decedent wrote

"Working On 2 8 1/23/93 TJC where is it?"3 On another page,
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4 The area code for Portland, Oregon is "503." The

telephone number (503) 378-2881 is assigned to the Bond and

Coupon Section of the Oregon State Treasury. 

decedent wrote "CALL STATE 1-378-2881 FOR DOPE".4 On the page

reporting bonds that paid interest in April and October, decedent

wrote next to one of the entries: 

 First Optional Call Date 4/1/2001 

 Watch for Call Date 

 Check with USNB 

In March 1993, while Mr. Meyer was obtaining valuation

figures for use in the Probate Inventory, Mr. Kadish prepared a

disclaimer that he and Mr. Wyse had intended decedent to sign

(Exhibit 8-H). Page 1 of Exhibit 8-H listed all the classes of

Mrs. Chamberlain's property; page 2 of Exhibit 8-H stated a

specific amount, $525,000, as being disclaimed. Exhibit 8-H did

not list any assets because Messrs. Meyer and Kadish planned to

wait until the values of all of Mrs. Chamberlain's probate assets

had been determined before deciding which assets to include in

the disclaimer. To that effect, in a memo to the June

Chamberlain Probate File, Mr. Meyer wrote:

Attached is the file. You can see a very nice

memorandum from John about disclaimers. I will need

to make up a total list of joint bonds as well, but we

won't pick those up right now, but we're going to have

to make a quick decision. Let's get what were [sic]

talking about, we'll value them and then see how many

more we want to add to the pile.
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Exhibit 8-H also contained a provision that was designed to

ensure that, if decedent should disclaim his survivorship

interest in any joint tenancy property, it would not pass to him

as part of the residue of Mrs. Chamberlain's estate: 

3. To the extent that property passes by reason

of this disclaimer to the residue of my deceased

spouse's estate, and to the extent that I have an

interest in the residue of my deceased spouse's estate

pursuant to Section 5.1 of her Will, I hereby make

the following further disclaimer with respect to the

residuary provision of Section 5.1: 

I disclaim the right to receive the sum of

$525,000 from the residue of my wife's estate, as

provided in Section 5.1, and acknowledge that

this disclaimed sum shall be distributed to the

trustee, to be held as described in the Family

Residuary Trust established in that section.

Due to inadvertence, Messrs. Meyer and Kadish never completed

Exhibit 8-H by listing the assets to be disclaimed therein, and

decedent never signed Exhibit 8-H or its equivalent. According

to Mr. Meyer, "It was intended to have been done and wasn't

done."

Other than Exhibit 8-H, no other document specifically

identified as a written disclaimer was prepared by decedent or by

anyone else on his behalf. None of the documents admitted into

evidence, including the pages of Exhibit 5-E and the Probate

Inventory refer to any specific disclaimed assets of any kind.

On April 30, 1993, acting in his capacity as personal

representative of the Estate of Mrs. Chamberlain, decedent signed
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5 The Form 706 was due Sept. 7, 1993. See sec. 20.6075-1,

Estate Tax Regs. No extension request was filed, presumably

because it was clear that Mrs. Chamberlain's estate would not be

taxable because of the availability of the marital deduction and

the unified credit.

the Probate Inventory and caused it to be filed with the local

probate court, which was done in May 1993. The Probate Inventory

had been prepared by Messrs. Meyer and Kadish with the assistance

of decedent and listed the assets included in Mrs. Chamberlain's

probate estate as valued on December 7, 1992, her date of death.

Total values of the assets listed were as follows: 

Cash and equivalents $248,195.87

Bonds 157,543.45

Stocks 69,581.63

 Total inventory 475,320.95

The Probate Inventory filed with the probate court did not refer

to any disclaimer of any assets by decedent. 

On September 30, 1993, a Federal estate tax return, Form

706, was filed with the Internal Revenue Service by decedent on

behalf of the Estate of Mrs. Chamberlain.5 On the Form 706, Line

1, decedent reported a gross estate of $883,006, including

$385,319 of jointly owned property, and on Line 2, total

allowable deductions of $390,245, which included a marital

deduction of $385,319. Decedent reported a taxable estate of

$492,761 and calculated a tentative tax of $153,339 and an

allowable unified credit of $192,800. Subtraction of the

allowable unified credit from the tentative tax amount produced
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an amount less than zero; accordingly, decedent reported zero

estate tax liability on Line 27 of the Form 706 because the

entire tentative tax had been absorbed by the unified credit. 

In April 1994, subsequent to the death of decedent in

February 1994, Mr. Meyer met in chambers with Judge Lee Johnson

of the Oregon Circuit Court for Multnomah County, Probate

Department, to discuss a proposed order of distribution for

Mrs. Chamberlain's estate different from that provided by her

will. Mrs. Chamberlain's will provided that the residue of her

estate was to pass to decedent or, to the extent disclaimed, the

Family Residuary Trust. Because decedent had died, Messrs. Meyer

and Kadish considered it unnecessary to distribute the assets to

a trust and then redistribute them from the trust to Dale. On

April 8, 1994, the Probate Department of the Oregon Circuit Court

for Multnomah County, in an order signed by Judge Johnson,

authorized an order of distribution for Mrs. Chamberlain's estate

under which all remaining assets of the estate, after payment of

expenses, were to be distributed to Dale. 

On November 21, 1994, a Federal estate tax return, Form 706,

was timely filed with the Internal Revenue Service by petitioner,

the estate of decedent. On the Form 706, line 1, petitioner

reported a gross estate of $1,104,352. On part 5, of the Form

706, the recapitulation of the gross estate showed the following

date of death value amounts:
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Schedule A -- Real Estate $151,558

Schedule B -- Stocks and Bonds 129,337

Schedule C -- Mortgages, Notes, and Cash 818,707

Schedule F -- Other Miscellaneous Property 4,750

Total gross estate 1,104,352

On the Form 706, Line 2, the estate reported total allowable

deductions of $56,678, and on Line 3, a taxable estate of

$1,047,674. These amounts did not include the assets of

Mrs. Chamberlain's estate that, petitioner claims, were

disclaimed under section 2518, and passed directly to Dale from

Mrs. Chamberlain's estate.

ULTIMATE FINDINGS OF FACT

At no time did decedent execute a written disclaimer of any

kind within the meaning of section 2518 or Oregon law.

At no time did decedent execute any written document by

means of which he irrevocably refused to accept assets otherwise

passing to him from the estate of Mrs. Chamberlain.

At no time did decedent execute a document that specifically

identified any interest in property disclaimed by him.

OPINION

The Chamberlains' estate plan provided that the bulk of the

estate of the first of them to die would be bequeathed to the

surviving spouse, and then to Dale after the death of the

survivor. Because of the 100-percent marital deduction for

property passing to the surviving spouse, such a plan by its

terms fails to take advantage of the unified credit in the estate
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of the first spouse to die. This causes the taxable estate of

the surviving spouse to be larger than it would have been if an

amount equal to the unified credit in the estate of the first

spouse to die had passed directly to the object or objects of

their joint bounty.

The technique for using the unified credit in the estate of

the first spouse to die that Meyer & Wyse discussed with decedent

and Mrs. Chamberlain was to have the surviving spouse disclaim

all or part of his or her interest in the estate of the first to

die. Using this technique would ensure that the unified credit

would be fully used in the estates of both spouses. By

bequeathing the residuary estate to the surviving spouse and

providing for the disposition of any property disclaimed, the

wills enabled the surviving spouse, with the benefit of current

asset valuations, to evaluate his or her financial needs and

decide whether to disclaim, and if so, how much to disclaim, so

as to use the unified credit to the extent consistent with his or

her evaluation of his or her own needs. See Manning et al. on

Estate Planning, 2-63 through 2-64 (5th ed. 1998).

Petitioner contends that decedent disclaimed his interests

in the probate property of Mrs. Chamberlain by substantially

complying with section 2518 and Oregon law and should be treated

as having never received the disclaimed interests for Federal

estate tax purposes. Respondent contends that decedent did not
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make a qualified disclaimer under section 2518(b) or otherwise

substantially comply with section 2518, so that the interests in

property alleged to be disclaimed are properly included in

decedent's gross estate.

I. Did Decedent Make a Qualified Disclaimer?

Section 2033 includes in the gross estate the value of all

property to the extent of the interest of the decedent at the

time of death. Section 2046 incorporates the provisions of

section 2518, which governs disclaimers of property interests for

Federal gift tax purposes. Under section 2046, a "qualified

disclaimer" meeting the requirements of section 2518 results in

the disclaimant's being treated as having never received the

disclaimed interest in property for Federal estate tax purposes. 

Instead, as provided by section 25.2518-1(b), Gift Tax Regs., the

interest is considered as passing directly to the persons

entitled to receive the property as a result of the disclaimer. 

Section 2518(a) provides that if a person makes a "qualified

disclaimer with respect to any interest in property", Subtitle B

(concerning estate and gift taxes) "shall apply with respect to

such interest as if the interest had never been transferred to

such person."

Section 2518(b) defines a "qualified disclaimer" as follows:

 

the term "qualified disclaimer" means an irrevocable

and unqualified refusal by a person to accept an

interest in property but only if--
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(1) such refusal is in writing,

(2) such writing is received by the

transferor of the interest, his legal

representative, or the holder of the legal title

to the property to which the interest relates not

later than the date which is 9 months after the

later of--

(A) the day on which the transfer

creating the interest in such person is

made, or

(B) the day on which such person attains

age 21,

(3) such person has not accepted the

interest or any of its benefits, and

(4) as a result of such refusal, the

interest passes without any direction on the part

of the person making the disclaimer and passes

either--

(A) to the spouse of the decedent, or

(B) to a person other than the person

making the disclaimer.

A. Acceptance of Assets or Income

Decedent's compliance with section 2518(b)(3) is not at

issue in this case because there is no evidence that decedent,

acting in his personal capacity, accepted any of the assets in

dispute or the income paid thereon. 

B. Passage of the Assets

Section 2518(b)(4) requires that the interest in property

disclaimed pass without any direction on the part of the

disclaimant to the decedent's spouse or a person other than the
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disclaimant. In the case at hand, if an effective disclaimer had

occurred, the interests in property disclaimed by the decedent

would have passed to the Family Residuary Trust created by Mrs.

Chamberlain's will. Section 25.2518-2(e)(2), Gift Tax Regs.,

provides that, if a surviving spouse disclaims, the survivor's

retention of a right to beneficial enjoyment thereof will cause

the survivor to be treated as directing its beneficial enjoyment

unless such right is limited by an ascertainable standard. 

Decedent's beneficial enjoyment of the Family Residuary Trust was

limited to an income interest and the Support Power; both are

ascertainable standards. See sec. 25.2518-2(e)(2), (5) Example

(6), Gift Tax Regs. Thus, decedent's beneficial interests in the

Family Residuary Trust would not have invalidated an otherwise

valid disclaimer under section 2518, had one been made. 

C. There Is No Written Instrument Containing an

Irrevocable and Unqualified Refusal of an Interest in

Property

"In general, a disclaimer (or renunciation) is a refusal to

accept the ownership of property or rights with respect to

property." H. Rept. 94-1380, 65 (1976), 1976-3 C.B. (Vol. 3)

735, 799. A "'qualified disclaimer' means an irrevocable and

unqualified refusal to accept an interest in property that

satisfies four conditions", including the condition that "the

refusal must be in writing." Id. at 67, 1976-3 C.B. at 801. 
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The person making the disclaimer must in the written

disclaimer instrument affirmatively and unequivocally renounce

his right to a property interest in a manner that is not subject

to revocation or retraction. The evidence in the record does not

satisfy this standard. Section 2518(b)(1) specifically requires

the irrevocable and unqualified refusal to be made in a written

instrument. 

Neither of the Documents, nor any other writing in the

record, contains any language manifesting the intent of decedent

to renounce his interest in any of Mrs. Chamberlain's probate

assets. The notations and items on Exhibit 5-E only evidence

decedent's efforts, after he became preoccupied with his

financial security, to inventory and classify his assets after

Mrs. Chamberlain's death and to determine his gross assets. 

While decedent may have intended to use the information in

Exhibit 5-E in planning to disclaim assets, with few exceptions,

as described supra, the text in Exhibit 5-E is limited to

headings for columns and entries describing or identifying the

assets listed, such as "T. Bill", "Portland Water" and "PG E". 

The many markings and notes found on the pages of Exhibit 5-E are

consistent with our conclusion that decedent prepared Exhibit 5-E

for his own use, namely, a determination of his gross assets, as

well as the steps he should take and when he could expect to

receive income at various times during the year. What we have
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not found on Exhibit 5-E is an irrevocable and unqualified

refusal by decedent to accept any interest in property otherwise

passing to him under the will of Mrs. Chamberlain. 

Nor did the Probate Inventory that decedent filed in the

local probate court in May 1993 contain an unequivocal

irrevocable renunciation by decedent of any interest in any of

the property listed therein. It was as personal representative

of Mrs. Chamberlain's estate, and not in a personal capacity,

that decedent was required to file a probate inventory. There

was nothing unusual about the form or content of the probate

court inventory that distinguished it from those that are

routinely filed by personal representatives. The Probate

Inventory contained no language manifesting an intent on the part

of the decedent to disclaim his interest in any property listed

therein. In sum, there is simply no evidence in the record that

decedent irrevocably refused his interests in the residue of Mrs.

Chamberlain's estate in a written instrument, if at all. 

Decedent therefore failed to satisfy an essential requirement of

section 2518(b). Consequently, regardless of whether petitioner

can meet the other requirements of section 2518(b), we hold that

decedent did not make a qualified disclaimer.
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D. No Written Disclaimer Designates the Property Being

Disclaimed

Section 25.2518-2(b)(1), Gift Tax Regs., requires that the

written disclaimer identify the property being renounced and be

signed by the disclaimant or his legal representative. The

purpose of this requirement, along with the requirement of

section 2518(b)(2) concerning delivery of the disclaimer,

discussed infra, is to avoid disputes about whether an interest

in property was disclaimed. See Stephens et al., Federal Estate

and Gift Taxation, par. 10.07[2][a] (7th ed. 1996); 5 Bittker &

Lokken, Federal Income Taxation of Income, Estates & Gifts, par.

121.7.3 at 121-52 (2d ed. 1993). 

 On brief, petitioner contends that assets valued at

$498,889 on Mrs. Chamberlain's date of death were disclaimed. 

Petitioner's list of assets alleged to be disclaimed by decedent

does not simply include the residue of Mrs. Chamberlain's 

estate--it includes all her probate assets. Inasmuch as

Mrs. Chamberlain's will provided a $75,000 pecuniary bequest

to Dale, we fail to see how decedent could have disclaimed all

the probate assets. 

Petitioner also claims that decedent identified the assets

that he was disclaiming by marking them with a "J". Yet only

$257,745 worth of assets was designated "J" by decedent on

Exhibit 5-E; another $149,799 worth of assets were designated "J"
- 24 -

by Dale. That leaves close to $100,000 of assets that was marked

"JT", that were not marked at all, or that were merely listed on

the Probate Inventory. Thus, even if designating certain assets

as "J" was sufficient for purposes of section 2518(b), the

question of what other assets were disclaimed would still be

unresolved. According to section 25.2518-2(b)(1), Gift Tax

Regs.: "The writing must identify the interest in property

disclaimed". We take that to mean that the writing itself, not

extrinsic evidence, must specify the assets that are being

disclaimed. Accordingly, inasmuch as decedent failed--within the

four corners of a written disclaimer instrument--to identify any

assets as being disclaimed, we hold that he did not comply with

section 25.2518-2(b)(1), Gift Tax Regs.

E. Delivery of Written Disclaimer

Section 2518(b)(2) and section 25.2518-2(b)(2), Gift Tax

Regs., require delivery of the written disclaimer to the

transferor of the interest, the transferor's legal

representative, or the holder of legal title to the property

(such as a trustee) within the applicable 9-month period. Where

the disclaimant is also the legal representative of the estate,

this requirement is satisfied when the disclaimant signs the

written disclaimer. See Estate of Bennett v. Commissioner,

100 T.C. 42, 67 n.14 (1993) (citing Estate of Fleming v.

Commissioner, 974 F.2d 894 (7th Cir. 1992), affg. T.C. Memo.
- 25 -

6 See, e.g., secs. 2041(a)(2), 2514(b) (disclaimers of

general powers of appointment); secs. 2055(a) and 2056(d) (estate

tax charitable and marital deduction provisions); sec. 25.2511-

1(c), Gift Tax Regs. (disclaimer must comply with local law in

order to be valid for gift tax purposes).

1989-675). Decedent had not yet been appointed personal

representative of Mrs. Chamberlain's estate when he prepared

Exhibit 5-E. Although decedent was the personal representative

of Mrs. Chamberlain's estate when he signed the Probate

Inventory, as discussed supra, the Probate Inventory could have

no operative effect as a disclaimer by decedent in his own right,

inasmuch as he signed it in a fiduciary capacity. 

II. State Law Compliance

Prior to enactment of section 2518 by the Tax Reform Act of

1976, Pub. L. 94-455, sec. 2009(b)(1), 90 Stat. 1893, the tax

consequences of an effective disclaimer were prescribed under

several Code sections.6 These sections did not provide

definitive rules as to what constituted a disclaimer for Federal

estate, gift, or generation skipping transfer tax purposes

("Federal transfer taxes"); they relied in part on local law to

determine whether a valid disclaimer had been made. See Fuller

v. Commissioner, 37 T.C. 147 (1961). As a result, the Federal

tax consequences of a disclaimer could depend on its treatment

under local law and on the type of transfer tax being imposed. 

See H. Rept. 94-1380, supra at 66. Congress enacted section 2518
- 26 -

with the intention of providing definitive rules for disclaimers

that could be uniformly applied among the States, with all three

of the Federal transfer taxes. Id.

The enactment of section 2518 made compliance with State law

alone insufficient to establish that a valid disclaimer has been

made for purposes of the Federal transfer taxes. Even if the

disclaimer complies with State law, it will not be a qualified

disclaimer for purposes of section 2518(a) unless it also

satisfies the requirements of section 2518(b), (c)(3). See

Estate of Hennessy v. United States, 81 AFTR 2d 98-383, 98-1 USTC

par. 60,298 (S.D. Ind. 1997); sec. 25.2518-2(c)(5) Example (5),

Gift Tax Regs.; Bittker & Lokken, supra par. 121.7.7, at 121-63. 

Nevertheless, a disclaimer will not be treated as a

qualified disclaimer under section 2518 unless it is effective

under applicable local law. This is because State law determines

whether or not a property interest has passed. See Estate of

Bennett v. Commissioner, supra at 67. 

Under Oregon law, the common-law right to disclaim has been

supplanted by the Uniform Disclaimer of Transfers by Will,

Intestacy or Appointment Act. See Or. Rev. Stat. sec. 112.650

through 112.667 (1997); Or. Rev. Stat. sec. 112.662 and Comment,

Uniform Disclaimer of Transfers by Will, Intestacy or Appointment

Act, sec. 5 ("Uniform Act"). Oregon Revised Statutes section

112.652 provides generally that an heir, legatee, or devisee may
- 27 -

disclaim the right of succession to any property by delivering to

the decedent's personal representative a written instrument

disclaiming the property. The written disclaimer must describe

the property interest disclaimed, declare the disclaimer and the

extent thereof, and be signed by the disclaimant; a copy of the

disclaimer may--but need not--be filed in the court exercising

probate jurisdiction. See Or. Rev. Stat. sec. 112.655.

For essentially the same reasons that decedent has failed to

satisfy section 2518(b), decedent's actions also fail to satisfy

Oregon Revised Statutes, section 112.652. Although no specific

language is required by Oregon Revised Statutes section 112.652,

the disclaimer must meet the requirements set forth in the

statute and must be incorporated into a written instrument. See

Palmer v. White, 784 P.2d 449, 451 (Or. Ct. App. 1989). As

discussed supra, decedent did not make a refusal in writing to

accept property or an interest in property, and therefore did not

"declare the disclaimer and the extent thereof" in the written

disclaimer instrument for purposes of Oregon law. See Or. Rev.

Stat. sec. 112.652 (1997). Moreover, decedent failed to describe

or designate the particular property being disclaimed, as

required by section 2518(b)(1) and section 25.2518-2(b)(1), Gift

Tax Regs., for Federal transfer tax purposes, and as required by

Oregon Revised Statutes section 112.652. 
- 28 -

On brief, petitioner acknowledges--and correctly so--that we

are not bound by the April 8, 1994, order of distribution of Mrs.

Chamberlain's estate issued by the local probate court. Legal

rights and interests in property and transfers thereof are

created and determined by State law, but the manner in which and

the extent to which such rights and interests shall be subjected

to Federal tax are determined by Federal law. See Helvering v.

Stuart, 317 U.S. 154, 161 (1942); Morgan v. Commissioner, 309

U.S. 78 (1940); Estate of Sweet v. Commissioner, 234 F.2d 401

(10th Cir. 1956), affg. 24 T.C. 488 (1955); Estate of Bennett v.

Commissioner, 100 T.C. at 59; see also Mapes v. United States, 15

F.3d 138 (9th Cir. 1994) (Federal law controlled whether

disclaimant had an interest in his mother's estate subject to

Federal tax lien, but State law controlled whether disclaimant

had any interest in property, lienable or not). "An order or

judgment of a State trial court obtained or entered in a

nonadversarial proceeding is not binding as between one or more

parties to such proceeding and the United States with respect to

income or estate tax imposed by Federal legislation." Estate of

Bennett v. Commissioner, supra at 60; see also Commissioner v.

Estate of Bosch, 387 U.S. 456 (1967); Estate of Sweet v.

Commissioner, supra at 404; Brodrick v. Moore, 226 F.2d 105 (10th

Cir. 1955). Accordingly, we hold that decedent did not disclaim

any property in accordance with Oregon law. 
- 29 -

III. Did Decedent Substantially Comply?

A. Substantial Compliance Doctrine

Petitioner argues, despite decedent's failure to comply

with the literal requirements of section 2518, that decedent

nonetheless substantially complied with section 2518 because he

intended to disclaim the assets at issue, accurately described

the assets to be disclaimed in the Documents, and delivered the

Documents to himself as personal representative. The doctrine of

substantial compliance has its origins in equity and is designed

to avoid hardship in cases where a party does all that can

reasonably be expected of him, but he nonetheless has failed to

comply with the requirements of a statutory provision. See

Sawyer v. County of Sonoma, 719 F.2d 1001 (9th Cir. 1983). 

This Court has applied the substantial compliance doctrine

and excused taxpayers from strict compliance with procedural

regulatory requirements, provided that the taxpayer substantially

complied by fulfilling the essential statutory purpose. See,

e.g., American Air Filter Co. v. Commissioner, 81 T.C. 709, 720

(1983); Tipps v. Commissioner, 74 T.C. 458, 468 (1980); Taylor v.

Commissioner, 67 T.C. 1071 (1977); Hewlett-Packard Co. v.

Commissioner, 67 T.C. 736, 748 (1977); Sperapani v. Commissioner,

42 T.C. 308, 330-333 (1964). Most cases in which we have applied

the doctrine of substantial compliance were alleged failures to
- 30 -

7 See, e.g., Prussner v. United States, 896 F.2d 218 (7th

Cir. 1990); Fischer Indus., Inc. v. Commissioner, 843 F.2d 224

(6th Cir. 1988); Kerry v. Commissioner, 89 T.C. 327 (1987); Young

v. Commissioner, 783 F.2d 1201 (5th Cir. 1986), affg. 83 T.C. 831

(1984); American Air Filter Co. v. Commissioner, 81 T.C. 709

(1983); Tipps v. Commissioner, 74 T.C. 458 (1980); Penn-Dixie

Steel Corp. v. Commissioner, 69 T.C. 837 (1978); Taylor v.

Commissioner, 67 T.C. 1071 (1977); Hewlett Packard Co. v.

Commissioner, 67 T.C. 736 (1977); Columbia Iron & Metal Co. v.

Commissioner, 61 T.C. 5 (1973); Valdes v. Commissioner, 60 T.C.

910 (1973); Hoffman v. Commissioner, 47 T.C. 218 (1966), affd.

per curiam 391 F.2d 930 (5th Cir. 1968); Sperapani v.

Commissioner, 42 T.C. 308 (1964); Cary v. Commissioner, 41 T.C.

214 (1963); Thurman v. Commissioner, T.C. Memo. 1998-233);

Rockwell Inn, Ltd. v. Commissioner, T.C. Memo. 1993-158.

make an election in accordance with applicable regulations.7

"The making of an election is involved where a taxpayer has a

choice of two methods of computing his tax, each of which is

legal." Thorrez v. Commissioner, 31 T.C. 655, 668 (1958), affd.

per curiam 272 F.2d 945 (6th Cir. 1959). The effect of an

election is generally limited to tax consequences. In contrast,

a disclaimer has both tax and nontax consequences, insofar as its

validity under section 2518 depends on the passage of property

under State law. See Estate of Bennett v. Commissioner, supra. 

Moreover, if a decedent makes a valid disclaimer, there is no

elective tax treatment; under section 2518, the property will

perforce be treated as if it had never passed or been transferred

to the decedent. 

Federal tax questions of substantial compliance have arisen

only on rare occasion outside the election context. Compare
- 31 -

Hewitt v. Commissioner, 109 T.C. 258 (1997) (no substantial

compliance found where petitioners failed to obtain an appraisal

required by section 1.170A-13, Income Tax Regs. of nonpublicly

traded stock that they donated), affd. per curiam 166 F.3d 332

(4th Cir. 1998), with Bond v. Commissioner, 100 T.C. 32 (1993)

(substantial compliance with that regulation found where

petitioners obtained a qualified appraisal, but did not attach a

written report to their return). See also Estate of Bennett v.

Commissioner, supra at 72-74 (discussing In re Will of Witz, 406

N.Y.S.2d 671 (Sur. Ct. 1978) (attempted disclaimer treated as in

substantial compliance with State statute)).

In other cases in which a substantial compliance claim has

been raised, we have consistently required "specific,

contemporaneous, and incontrovertible evidence of a binding

election to accept the tax consequences imposed by the section. 

We are not at liberty to infer that an election existed when the

unequivocal proof required by Congress does not exist." Tipps v.

Commissioner, supra at 470-471; Dunavant v. Commissioner , 63

T.C. 316 (1974); see also Young v. Commissioner, 83 T.C. 831, 839

(1984) ("the taxpayer must exhibit in some manner, within the

time prescribed by the statute, his unequivocal agreement to

accept both the benefits and burdens of the tax treatment

afforded by that section."), affd. 783 F.2d 1201 (5th Cir. 1986);

Valdes v. Commissioner, 60 T.C. 910, 914-915 (1973). Thus, a
- 32 -

prerequisite to seeking relief under the substantial compliance

doctrine is a showing that the taxpayer wished to avail himself

of a certain tax treatment and attempted to comply with the

applicable requirements. Finally, there is no defense of

substantial compliance for failure to comply with the essential

requirements of the governing statute. See Prussner v. United

States, 896 F.2d 218, 224 (7th Cir. 1990); see also Tipps v.

Commissioner, supra at 468; Penn-Dixie Steel Corp. v.

Commissioner, 69 T.C. 837, 846 (1978); Rockwell Inn, Ltd. v.

Commissioner, T.C. Memo. 1993-158. Moreover, substantial

compliance cannot be applied if to do so would defeat the

policies of the underlying statutory provisions. See Sawyer v.

County of Sonoma, supra at 1008. 

We have examined the specific requirements of section

2518(b) to determine whether they relate to the substance or

essence of the statutory and regulatory scheme. See Young v.

Commissioner, supra at 838; Tipps v. Commissioner, supra. We

have also examined the legislative history of section 2518. See,

e.g., Cary v. Commissioner, 41 T.C. 214, 218-219 (1963); Taylor

v. Commissioner, supra at 1078; see also United States v. St.

Regis Paper Co., 355 F.2d 688, 692 (2d Cir. 1966) ("If a

requirement [of a statute] is so essential a part of the plan

that the legislative intent would be frustrated by a
- 33 -

noncompliance, then it is mandatory."); Vaughn v. John C. Winston

Co., 83 F.2d 370, 372 (10th Cir. 1936).

Congress enacted section 2518 in order to provide definitive

and uniform disclaimer rules for purposes of the Federal transfer

taxes. From the legislative history and text of section 2518, it

is clear that, above all else, a valid disclaimer requires an

irrevocable and unqualified refusal, expressed in writing, to

accept an interest in property. The policy underlying the

requirements of section 2518(b) is to ensure that only actual and

verifiable refusals of an interest in property, made without the

benefit of hindsight, are treated as disclaimers for purposes of

the Federal transfer taxes. See Estate of Lute v. United States,

19 F. Supp. 2d 1047 (D. Neb. 1998) (citing 5 Bittker & Lokken,

supra, par. 121.7.2 at 121-51). Essential to the furtherance of

this policy is the requirement that an irrevocable and

unqualified refusal be made timely in a written instrument. 

Unless the intent to disclaim is expressed in writing, the

disclaimant retains a degree of control over the property after

the purported disclaimer because he can freely withdraw the

disclaimer after the fact. Because the disclaimant is able to

withdraw an equivocal disclaimer after the fact, when the

purported disclaimer is claimed to have occurred, it is

impossible to determine whether the property will ultimately vest

in the taxpayer or some other person. See Estate of Lute v.
- 34 -

United States, supra; Bittker & Lokken, supra. With hindsight,

the disclaimant could later decide whether or not to treat the

equivocal instrument as a disclaimer or keep the property. 

We had similar concerns in Valdes v. Commissioner, 60 T.C.

910, 915 (1973), where we rejected a claim of substantial

compliance:

That Congress fixed a deadline of December 31, 1965,

for making the election suggests that a taxpayer was

not to be allowed to file an ambiguous statement which

would permit him to wait and see whether the benefits

would outweigh the burdens of the election in his

individual case. Rather, as a minimum, the taxpayer is

required to definitely commit himself as to whether he

elects to have section 172(b)(1)(D) apply * * *. * * * 

B. No Persuasive Evidence of Disclaimer

From the inception of this case, petitioner's counsel has

characterized respondent's determination not to recognize

decedent's alleged disclaimer as a reliance on technicalities. 

According to petitioner, "the government's approach to these

cases * * * is always an approach which wants to find some minute

defect in what the taxpayer did and then deny congressionally

granted tax benefits based on that minute defect." In the

absence of a written disclaimer, petitioner has relied on the

testimony of Dale, with that of Messrs. Meyer and Kadish, the

attorneys who handled the estates of the Chamberlains

(collectively, "witnesses"), to establish that decedent

substantially complied with section 2518. 
- 35 -

1. Petitioner's Intent to Disclaim

According to petitioner, "everyone agrees that Mr.

Chamberlain [decedent] intended to disclaim." Petitioner

apparently believes that the mere showing of intent, without any

actions on the part of the decedent in furtherance of his intent,

is sufficient for a showing of substantial compliance. We

disagree. See Tipps v. Commissioner, 74 T.C. 458 (1980);

Dunavant v. Commissioner , supra; Taylor v. Commissioner, 67 T.C.

1071 (1977); Valdes v. Commissioner, supra. Even if decedent

told Dale and Mr. Meyer that he intended or wished to or did

disclaim the assets marked J, or the assets solely owned by Mrs.

Chamberlain at her date of death, an oral statement to any of

those effects would not and does not satisfy the requirement that

the refusal be in writing. See sec. 2518(b). 

At trial, Dale testified that decedent had discussed

disclaiming the probate assets with him for a long time and that

decedent planned to disclaim "the amount that would absolutely

minimize taxes down to the last dollar." No part of Dale's

testimony, however, concerned his actual knowledge of a

disclaimer. Dale never witnessed the decedent take any actions

to disclaim, and there is no indication that decedent ever told

Dale that he had done something that he intended to be legally

operative as a disclaimer. Dale could not remember asking

decedent whether he was going to have a specific disclaimer
- 36 -

document prepared and did not remember decedent's saying that he

was going to have a written disclaimer prepared for him. 

Finally, when asked by the Court whether he had discussed the

alleged disclaimer with Meyer & Wyse, Dale equivocated and

backtracked in his testimony, first saying that he did not have a

conversation about the disclaimer until after September 7, 1993

(the due date for filing the estate tax return for Mrs.

Chamberlain); in further questioning, Dale admitted that he could

not recall being aware of the alleged disclaimer at the time he

signed the Form 706 estate return for decedent's estate, which

had been prepared by Mr. Kadish, and could not recall whether he

first became aware of the alleged disclaimer in connection with

the audit of petitioner's Form 706, or at some earlier date.

The testimony offered by Messrs. Kadish and Meyer regarding

decedent's intent is also unpersuasive. Mr. Meyer testified that

decedent told him he was disclaiming the J assets when they met

in December 1992. Mr. Kadish testified that he and Mr. Meyer

considered this in taking the position that decedent had

disclaimed: 

based upon his rather detailed outline of June’s

separate assets, which he signed, and also the probate

inventory, which he signed, and coupled with his

intention, which was repeatedly, I believe, expressed

to Mr. Meyer that he wished to disclaim all these

assets, we took the position that that constituted in

effect a disclaimer. 
- 37 -

Mr. Kadish admitted in testimony that he had never discussed the

topic of disclaimer with decedent, but that instead he had relied

on what Mr. Meyer told him about decedent's intentions. If

Messrs. Meyer and Kadish were confident that decedent's

expression of intent to disclaim in December 1992 constituted a

disclaimer, then why did they prepare Exhibit 8-H, a draft of a

written disclaimer, in March 1993? If Exhibit 8-H were

superfluous, why would Mr. Meyer admit in testimony that his firm

had been negligent in failing to see to it that decedent executed

Exhibit 8-H? If petitioner's position carried any weight, which

it does not, a great portion of it would fall on petitioner's

contention that Exhibit 5-E satisfied the written disclaimer

requirement of section 2518(b). According to petitioner, the

purpose of Exhibit 5-E was:

To identify which assets were Mom's [Mrs. Chamberlain's]

property, which were his [decedent's] property, and

which were joint property to effect the plan to settle

the estate, the estate plan. 

 * * * * * * *

He had for a long time [discussed disclaiming J

assets], and while we were going over this document, he

was talking about these would be the assets he would

disclaim. 

Petitioner's testimony was in the subjunctive future tense and

does not say that Exhibit 5-E was a disclaimer or even intended

to be one. If decedent had intended Exhibit 5-E to be a

disclaimer, we believe that he would have considered it important
- 38 -

enough to show it to Mr. Meyer, decedent's longtime acquaintance

and a trusted adviser. Mr. Meyer was in frequent contact with

decedent after Mrs. Chamberlain's death; yet, at trial, Mr. Meyer

had no specific recollection of speaking with decedent about

Exhibit 5-E. If decedent intended to disclaim using Exhibit 5-E,

why did he total the values of the assets listed on Exhibit 5-E

to determine his gross assets but not reduce those totals by the

values of the assets that he intended to disclaim? We think that

decedent intended Exhibit 5-E to serve: (1) As the "list of all

assets * * * & how they are held", that Mr. Kadish referred to in

his response to Mr. Meyer on Exhibit 4-D that they needed to

prepare Form 706 for Mrs. Chamberlain's estate and to plan

decedent's disclaimer, and (2) as a worksheet that enabled

decedent to track his gross assets and determine when he would

be receiving interest and dividend payments. This explains

why decedent began preparing Exhibit 5-E after meeting with

Mr. Meyer and organized the listing of assets according to the

dates that interest and dividend payments would be made, rather

than grouping the assets according to their source; i.e., "J",

"JT", "T". Our conclusion is also supported by testimony about

decedent's personality, by Mr. Meyer, who had known decedent for

many years, as well as by Dale: 

[Decedent] was very methodical. He was an engineer. 

He took very careful care of his finances. He took

pride in his ability to maintain control over his life
- 39 -

and his assets, and so he would keep careful records of

them, and I was familiar with those records and would

see them. 

According to Dale, after Mrs. Chamberlain's death, decedent

became increasingly cautious in the management of his finances:

He got to the point where he would check with me

before he did anything, and he did very little. He

owned stock. He kept stock. He owned bonds. He held

them. * * * 

 * * * * * * *

He continually became more and more cautious. He

wouldn't do anything without checking with me. He made

very few investment changes. 

2. What Assets Were Disclaimed?

Even assuming for the sake of argument that decedent had

disclaimed something, the question of what assets had been

disclaimed would still be unresolved. Rather than resolving this

question, the inconsistencies in the testimony of the witnesses

further convince us that decedent did not disclaim. Each of the

witnesses has testified that decedent intended to disclaim all

the probate assets; yet there is just as much evidence that

decedent had actually intended, in order to maximize the use of

the unified credit, to disclaim much more than just the probate

assets. According to Dale, decedent "had planned to disclaim the

amount that would absolutely minimize taxes down to the last

dollar." A basic step in any effort to minimize estate taxes is

the use of the unified credits of each spouse, which allow
- 40 -

property to pass to heirs without inclusion in the taxable

estate. See sec. 2010; Manning et al., supra at 1-22. If

decedent sought to minimize his estate taxes "down to the last

dollar", he would have wanted to disclaim enough property to use

fully the unified credit in Mrs. Chamberlain's estate. In

contradiction to his own testimony, Dale testified that while he

and decedent were reviewing Exhibit 5-E, "he [decedent] was

talking about these [the probate assets] would be the assets he

would disclaim." The probate assets, including the $75,000 that

would be used to pay Dale's specific bequest, had a date of death

value of $492,761 yet the unified credit available for Mrs.

Chamberlain's estate was $600,000. Thus, unless decedent also

disclaimed a portion of his survivorship interests in joint

tenancy property, $107,239 of the unified credit would be wasted.

At trial, Mr. Meyer testified that decedent had expressed

his intent to disclaim the probate assets. This statement,

however, contradicts Exhibits 4-D and 9-I, memoranda written by

Mr. Meyer and Mr. Kadish's responses thereto, and Exhibit 8-H,

the disclaimer document that was prepared by Mr. Kadish. All 3

exhibits clearly contemplate a disclaimer of joint tenancy

property to the extent necessary to use the full amount of the

unified credit, after taking into account the probate assets. In

Exhibit 4-D, Mr. Kadish's response to Mr. Meyer illustrates that

they were of the view that joint tenancy property could be
- 41 -

8 Former disclaimer regulations in effect prior to

decedent's death required a survivorship interest in a joint

tenancy to be disclaimed within 9 months of the creation of the

tenancy. However, by the time of Mrs. Chamberlain's death, it

was generally accepted, in the case of a unilaterally severable

interest in a joint tenancy, that the date of death of the joint

tenant was the starting point for measuring the timeliness of a

disclaimer under sec. 2518(b)(2). See McDonald v. Commissioner,

T.C. Memo. 1989-140, on remand from 853 F.2d 1494 (8th Cir.

1988); IRS Action on Decision 1990-06 (Feb. 7, 1990). 

disclaimed,8 and were indeed considering it. Thus, when drafting

Exhibit 8-H, Mr. Kadish used $525,000 as the amount that would be

disclaimed, which exceeded the value of the probate assets after

deducting the $75,000 needed to pay the specific bequest. Mr.

Kadish did not identify the specific assets to be disclaimed when

he drafted Exhibit 8-H because he and Mr. Meyer planned to

determine which assets would be disclaimed after all the probate

and joint tenancy assets were identified and valued. As

described in Exhibit 9-I, Mr. Meyer planned to value Mr.

Chamberlain's survivorship interests in jointly held bonds and

then disclaim however many bonds would be necessary to use fully

the unified credit: 

I will need to make up a total list of joint bonds

as well, but we won't pick those up right now, but

we're going to have to make a quick decision. Let's

get what were [sic] talking about, we'll value them

and then see how many more we want to add to the

 pile.

Decedent never signed Exhibit 8-H--not because a disclaimer

was otherwise accomplished--but because, as petitioner's counsel
- 42 -

acknowledged at trial--of the "inadvertence and oversight and

negligence at [Myer & Wyse]...this [signing Exhibit 8-H] was not

carried through." 

C. No Compliance

Petitioner's counsel has tried to cure the effects of the

inadvertence by cobbling together a series of nondispositive

documents and events. 

These efforts are unavailing because substantial compliance

cannot be predicated on lack of compliance. Contrary to

petitioner's characterizations of the situation, we do not find

respondent's refusal to recognize the alleged disclaimer to be "a

rigid, inequitable application of the regulations." In the case

at hand, decedent failed to make an irrevocable and unqualified

refusal in writing of an interest in property. This was hardly a

failure to comply with procedural or directory requirements. 

Decedent failed to execute a written document containing a

manifestation of his intent to disclaim the assets marked "J", or

any other interests in property, and he therefore failed to

comply with the essential requirements of section 2518. See

American Air Filter Co. v. Commissioner, 81 T.C. at 719. "[T]his

is not a case where the taxpayer has fulfilled all underlying

requirements but failed to file evidence of such facts." PennDixie Steel Corp. v. Commissioner, 69 T.C. at 847; Columbia Iron

& Metal Co. v. Commissioner, 61 T.C. 5 (1973). "Nor is it a case
- 43 -

where the taxpayer's failure is only an oversight or mistake

which was corrected immediately after discovery." Penn-Dixie

Steel Corp. v. Commissioner, supra at 847; see Haft Trust v.

Commissioner, 61 T.C. 398 (1973), supplemented by 62 T.C. 145

(1974) and vacated and remanded 510 F.2d 43 (1st Cir. 1975); Cary

v. Commissioner, 41 T.C. 214 (1963); Reaver v. Commissioner, 42

T.C. 72 (1964); see also Judge Posner's comments in Prussner v.

United States, 896 F.2d at 224:

The common law doctrine of substantial compliance

should not be allowed to spread beyond cases in which

the taxpayer had a good excuse (though not a legal

justification) for failing to comply with either an

unimportant requirement or one unclearly or confusingly

stated in the regulations or the statute. * * * 

Petitioner's evidence, explanations, and argument do not provide

any valid substitute for decedent's failure to comply with

section 2518. What petitioner is seeking is "not the application

of the substantial compliance principle but an exemption from the

clear requirement of the statute and regulations". Hewitt v.

Commissioner, 109 T.C. at 265-266. Decedent did not

substantially comply with the requirements of section 2518 and

did not disclaim any property for purposes of the Federal estate

tax or of Oregon law.

To reflect the foregoing,

 Decision will be entered

 under Rule 155.