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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).

- 2 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.

- 3 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.

school language teacher.

Mrs. Chamberlain had been a high

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:

- 4 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

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).

- 5 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

- 6 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.

- 7 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 8½ 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 8H, 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

On some of the duplicates, decedent added information in

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

issues in this case.

- 8 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:

coupon, and registered.

Treasury,

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

- 9 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

Treas.

Time

Account

To Bank

Dates

Amount

No.

T.D.

1/16/92

20K

T.Bill

52 week

9900-xx

WSNB

1/23/92

80k

T.Bill

26 week

9900-xx

WSNB

1/23/92

45k

T.Bill

26 week

9900-xx

WSNB

1/30/92

45k

T.Bill

52 week

4400-xx

WSNB

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

- 10 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

- 11 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,

The numbers "2" and "8" were circled and are decedent's

abbreviations for February and August.

- 12 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.

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.

- 13 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:

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

- 14 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

Bonds

Stocks

Total inventory

$248,195.87

157,543.45

69,581.63

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

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.

- 15 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.

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:

- 16 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

- 17 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.

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

- 18 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.

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--

- 19 (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.

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.

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

- 20 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.

(6), Gift Tax Regs.

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

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.

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.

- 21 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.

satisfy this standard.

The evidence in the record does not

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

- 22 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.

- 23 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.

Regs.:

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

"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.

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 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.

v. Commissioner, 37 T.C. 147 (1961).

See Fuller

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

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. 25.25111(c), Gift Tax Regs. (disclaimer must comply with local law in

order to be valid for gift tax purposes).

- 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.

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

See

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.

Stat. sec. 112.652 (1997).

See Or. Rev.

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?

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 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

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.

- 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).