T.C. Memo. 2004-197
UNITED STATES TAX COURT
LINDA OLSON, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 8437-03. Filed August 31, 2004.
Barry K. Rothman, for petitioner.
Laura Beth Salant, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
LARO, Judge: Petitioner petitioned the Court to redetermine
respondent’s determination of a $182,636 deficiency in her 2000
Federal income tax and a $36,459 accuracy-related penalty under
section 6662(a) of the Internal Revenue Code as applicable to
2000. Following petitioner’s concessions, we are left to decide
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whether petitioner during 2000 received a $461,709 distribution
from an individual retirement account (IRA). We hold she did.
FINDINGS OF FACT
Some facts were stipulated and are so found. The
stipulations of fact and the accompanying exhibits are
incorporated herein by this reference. Petitioner resided in
Beverly Hills, California, when her petition to this Court was
filed. She filed a 2000 Federal income tax return that did not
report any distribution received from an IRA. Prudential
Securities Inc. (Prudential) reported on a 2000 Form 1099-R,
Distributions From Pensions, Annuities, Retirement or Profit-
Sharing Plans, IRAs, Insurance Contracts, etc., that petitioner
had during 2000 received a taxable distribution of $461,709.19
from an IRA. Respondent in the notice of deficiency determined
the same (rounding the $461,709.19 to $461,709).
Petitioner’s brother, Peter D. Olson (Olson), died on
November 14, 1998. When he died, he owned an IRA held in
Prudential account number 004-R68371-N3 (Olson’s account). The
assets in the IRA at the time of his death included 115,917
shares of the stock of Klever Marketing Inc. (Klever). Olson, a
founder and director of Klever, received those shares on or
before March 4, 1998. The Klever stock certificate (certificate)
underlying those shares, number 6278, stated:
The shares represented by this certificate have not
been registered under the Securities Act of 1933. The
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shares have been acquired for investment and may not be
offered, sold or otherwise transferred in the absence
of an effective Registration Statement for the shares
under the Securities Act of 1933 or a prior opinion of
counsel satisfactory to the issuer that registration is
not required under that Act.
Petitioner was the sole beneficiary of Olson’s account. Her
account at Prudential was numbered JQS-027297-N3 (petitioner’s
account). On February 21, 2000, petitioner signed a 2-page
Prudential form (form) entitled “Distribution Request”.
Prudential gave this form to its account holders who wanted to
request a distribution from a retirement account. The form
signed by petitioner states on page one that (1) she is the
beneficiary of Olson’s account, (2) Olson died, (3) she, on
account of Olson’s death, is requesting a distribution of all
amounts in Olson’s account in closure thereof, (4) these amounts
consist of cash and securities, (5) these amounts should be
distributed to petitioner’s account by way of a journal entry,
and (6) Prudential should not withhold any Federal or State taxes
from this distribution. Page 2 of the form bears petitioner’s
signature and handwritten date of February 21, 2000, immediately
below the following statement:
By signing here, I certify that the information
provided on this form regarding my status with respect
to the IRA, SEP-IRA, SARSEP-IRA, SIMPLE IRA, ROTH IRA
or EDUCATION IRA involved and in all other aspects is
correct. I also certify that the action directed on
this form fully complies with the terms of the
applicable Individual Retirement Agreement. I
acknowledge that the custodian is not responsible for
ascertaining the appropriateness of the distribution.
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Also, my Federal and State Income Tax withholding
election is applicable to any subsequent distribution
until it is revoked by me under the procedure
established by the custodian. I acknowledge some
states require withholding if Federal withholding is
elected. I also acknowledge that certain fees may be
charged to the account depending on the type of
distribution I have requested. I also acknowledge that
funds must be available for the requested gross
distribution to occur. If you have any questions,
please call your Financial Advisor * * * for details.
Prudential made the requested journal entry as of March 3,
2000, and on March 3, 2000, transferred 155,917 Klever shares
from Olson’s account to petitioner’s account. Prudential valued
these shares at $456,481.14 for purposes of the transfer.
Prudential also in March 2000 transferred $5,228.04 in cash from
Olson’s account to petitioner’s account.1 From March 3 to
December 31, 2000, Prudential included the subject shares and
their value in petitioner’s account and issued to petitioner
statements for that account showing the same with an unexplained
notation “legal documents pending”. The statement for December
2000 lists the total value of the subject shares at $43,468.88 as
of December 31, 2000, and notes that petitioner had a $413,012.26
unrealized loss on those shares as of that date.
A transfer agent acts on behalf of an issuer of securities
to record the owners of those securities. The transfer agent for
Klever stock was Atlas Stock Transfer (Atlas). On October 30,
1
The amount of this cash and the value of the subject
shares total $461,709.19.
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2001, Klever notified Atlas that petitioner had recently asked it
to lift the restrictive legend as to the shares underlying
certificate number 6278 and to transfer those shares into the
street name of Prudential. On November 28, 2001, in response to
this notification, Atlas cancelled certificate number 6278 and
issued in the street name of Prudential certificate number 6980
with no restrictive legend. Street name securities are held by a
company such as Prudential for the benefit of its clients.
Securities held in street name may be placed into an individual’s
account and beneficially owned by the individual although the
owner listed in the transfer agent’s records is a street name. A
transfer agent usually does not know the identity of the owner of
securities which are recorded in its records in street name.
OPINION
Respondent determined that petitioner received a $461,709
distribution during 2000. Respondent in support of that
determination focuses on the fact that petitioner, during 2000,
both authorized the distribution and received it in her account.
Petitioner argues that she received no distribution during 2000.
Petitioner focuses on the fact that certificate number 6278 was
not changed during 2000 to reflect any change in the name of the
underlying shares’ owner and that this certificate contained a
legend that prohibited any transfer of the underlying shares
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unless registered or opined by counsel to be excepted from
registration.
We agree with respondent that petitioner received the
subject distribution during 2000.2 Contrary to petitioner’s
assertion, the transfer of the subject shares from Olson’s
account to petitioner’s account, to be effective, did not require
that a new certificate be issued to reflect a change of name from
that of the owner shown on certificate number 6278. As the Court
noted in Meyer v. Commissioner, 46 T.C. 65, 106 (1966), revd. on
other grounds 383 F.2d 883 (8th Cir. 1967), the act of a transfer
agent in recording an ownership change in stock is a
“ministerial, bookkeeping act”, and a change in stock ownership
may occur without any action by a transfer agent and without
regard to whether new certificates are issued to reflect the
transfer. See also Corliss v. Bowers, 281 U.S. 376, 378 (1930)
(“taxation is not so much concerned with the refinements of title
as it is with actual command over the property taxed”); Byrne v.
Commissioner, 54 T.C. 1632, 1639 (1970) (“an economic interest in
a corporation may arise although a certificate of stock
evidencing such interest has not yet been issued in the name of
the owner”), affd. 449 F.2d 759 (8th Cir. 1971). Accord
2
We decide this issue without regard to which party bears
the burden of proof. We note, however, that taxpayers generally
bear the burden of proof in this Court and that petitioner has
not asserted in her brief that respondent bears the burden of
proof in this case.
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Helvering v. Rankin, 295 U.S. 123, 127 (1935), where the Supreme
Court described stock transfers of the taxpayer, Turner, stating:
In none of these transactions did the broker
deliver to Turner, or Turner to the broker, any stock
certificate. No specific certificate of stock was ever
bought or sold by the broker for Turner; and none was
earmarked or allocated for him in any manner. The
purchases and sales affecting his account were made
through the medium of street certificates handled by
the broker; and the transactions were evidenced solely
by debits and credits in his account on the broker’s
books * * *
Petitioner’s assertion that she acquired the subject shares
only upon Atlas’s issuance of a new certificate is further eroded
by our finding that she was the one who in fact caused Atlas to
issue a new certificate. Petitioner’s ability to cause the
cancellation of certificate number 6278 and the issuance of
certificate number 6980 is indicative of her ownership of the
subject shares before November 28, 2001, the date on which that
new certificate was issued. While petitioner points the Court to
Rev. Rul. 81-158, 1981-1 C.B. 205, in search of a contrary
holding, she construes that ruling too narrowly. Although both
situations in the ruling do conclude that the transfer of stock
occurs when the transfer agent is directed to reissue shares in
the name of the new owner, the ruling does not conclude, as
petitioner would have it be, that a transfer of stock may only
occur when a transfer agent receives such a direction.
Nor is it dispositive to our decision that certificate
number 6278 contained the referenced restrictive legend. Given
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the record before us, the dispositive facts of this case, as we
see it, are fourfold. First, petitioner intended to effect a
distribution of the subject shares into petitioner’s account
during 2000. Second, she relayed that intent to Prudential
during 2000. Third, Prudential carried out that intent during
2000 by transferring the subject shares into petitioner’s
account. Fourth, petitioner during the last 10 months of 2000
knowingly enjoyed the benefit of the added value of those shares.
We hold for respondent.3 All arguments in this case have
been considered, and those arguments not discussed herein are
without merit or inapplicable to our decision.4
Decision will be entered
for respondent.
3
Petitioner’s request for a contrary holding is most likely
driven by the fact that our holding means that she is liable for
2000 Federal income tax on the value of the subject shares at the
time of distribution, yet her recognition of any loss realized as
to those shares is generally limited to $3,000 per year.
4
Petitioner asserts that the value of the subject shares
must be discounted because they were restricted shares which
could not be transferred publicly. Even if we were to assume
that petitioner is correct in her assertion that the subject
shares could not be transferred publicly, an assertion which may
actually be incorrect given the many exceptions set forth in rule
144 of the Securities Act of 1933, 17 C.F.R. sec. 230.144 (2004),
for public transfers, we do not find (nor has petitioner pointed
us to) any evidence in the record upon which to determine such a
discount.