Note: The following is an excerpt from the introduction to the article as published in The Tax Lawyer. Author citations have been omitted for brevity. Tax Section members may read the article in its entirety in Adobe Acrobat format.
Dot All ‘I’s and Cross All ‘T’s: Estate of Tamulis v. Commissioner and the Narrowing of the Substantial Compliance Doctrine to the Technical Compliance Doctrine
Hanna M. Chouest
Charitable remainder trusts have long been one of the many elections made available to taxpayers in the Code. Elections enable taxpayers to select from two or more alternative treatments of a tax event. To make an election a taxpayer must, in theory, simply manifest that intention; however, in practice the process can be more complicated, requiring extensive paperwork and production of documents. Due to the complicated nature of the election process, courts developed the substantial compliance doctrine, which can be employed to forgive minor errors in a taxpayer’s filings. However, since 1993, courts have consistently ruled against taxpayers who have sought relief under the substantial compliance doctrine and have seemingly viewed it in an increasingly restrictive light. Although the current application of the doctrine seems harsh, there are strong policy reasons for applying it in this manner. Recently, Judge Posner for the Seventh Circuit in Estate of Tamulis v. Commissioner followed the current trend and refused to apply the substantial compliance doctrine to a taxpayer’s estate that failed to comply with all of the requirements of section 664 to create a charitable remainder trust.
This Note argues that the Seventh Circuit correctly held that the charitable remainder trust established by the Tamulis estate did not satisfy the requirements of the substantial compliance doctrine as it has been applied by the courts. However, Judge Posner did not take the opportunity made available to him in Tamulis to clarify the doctrine and acknowledge that the courts are now applying a technical compliance, rather than a substantial compliance, standard in such cases.
Part II of this Note explores the facts of Tamulis and discusses the current tax treatment of charitable remainder trusts. Part III explains the Seventh Circuit’s reasoning and holding in Tamulis. Part IV argues that Judge Posner’s treatment of the substantial compliance doctrine in Tamulis is consistent with (1) current precedent, (2) public policy, and (3) other areas of law, namely contract and wills, as well as foreign court judgments. Part V finds that Tamulis is consistent with current law but concludes that the court could have clarified the doctrine to offer more taxpayer guidance.