Estate of Frances Elaine Freedman v. Comm'r

T.C. Memo. 2007-61

UNITED STATES TAX COURT

ESTATE OF FRANCES ELAINE FREEDMAN, DECEASED,
ROBIN ELAINE CARNETTE, PERSONAL REPRESENTATIVE, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 6416-04. Filed March 19, 2007.

In late 1999, D received stock in ECNC in exchange
for her interest in a business venture. In January of
2000, D contributed the stock to a recently opened
joint brokerage account titled in her name and that of
her son. Shares of ECNC were thereafter sold between
late January and early March of 2000, generating
substantial capital gains.

Held: D, and not her son, is considered under
State law to be the owner of all ECNC stock in the
joint account and is therefore taxable on the full
amount of the gain arising from its sale.

Joe M. Gonzalez, for petitioner.

Michael A. Pesavento, for respondent.
 - 2 -

MEMORANDUM FINDINGS OF FACT AND OPINION

WHERRY, Judge: Respondent determined a Federal income tax

deficiency in the amount of $567,864 and a penalty pursuant to

section 6662 of $113,572.80 with respect to the 2000 taxable year

of Frances Elaine Freedman (decedent).1 After concessions, to be

explained in greater detail below, the principal issue for

decision is what portion of gain from certain stock sales is

taxable to decedent in 2000.

FINDINGS OF FACT

Some of the facts have been stipulated and are so found.

The stipulations of the parties, with accompanying exhibits, are

incorporated herein by this reference. Decedent was a resident

of the State of Florida when she died testate in Sint Maarten

(also referred to as St. Martin), Netherlands Antilles, on

June 17, 2003. Her estate was admitted to probate in the Circuit

Court for Hernando County, Florida, and her daughter, Robin

Elaine Carnette (Ms. Carnette), was appointed personal

representative. The instant tax case was subsequently filed on

behalf of the Estate of Frances Elaine Freedman (the estate), at

which time Ms. Carnette resided in Brunswick, Georgia.

1
Unless otherwise indicated, section references are to the
Internal Revenue Code of 1986, as amended and in effect for the
year in issue, and Rule references are to the Tax Court Rules of
Practice and Procedure.
 - 3 -

Family Background

Decedent was born on June 2, 1933. Her formal education

ended upon dropping out of high school during eleventh grade.

She thereafter married and divorced several times. Among her

children were half-siblings Ms. Carnette and Ernest Greene (Mr.

Greene), born in or about 1961 and 1964, respectively.

eConnect Stock and Proceeds

At some time prior to September of 1999, decedent and her

then companion, Peter Pajarinin (Mr. Pajarinin), became involved

in owning and operating an Internet casino in Costa Rica. On

September 8, 1999, decedent and Mr. Pajarinin sold their

interests in the venture and as part of the transaction each

received 525,000 shares of stock in eConnect, the acquiring

entity. The stock at that time was considered a “penny stock”,

trading over the counter with the ticker symbol ECNC at under 30

cents per share.

On or about January 7, 2000, a joint account was opened in

the names of “Frances Elaine Freedman & Ernest Greene” with the

brokerage firm of Valdes & Moreno, Inc. (Valdes & Moreno).

Valdes & Moreno served as the “introducing broker” for the

account, which account in turn was carried and cleared under an

agreement with the investment banking firm First Southwest

Company. The opening of this account was documented by, among

other things, a customer agreement, a joint account agreement,
 - 4 -

and a margin and short agreement. These documents set forth

information concerning the account as well as its governing terms

and conditions. The customer agreement designated the type of

account as “JTWROS”, and the joint account agreement reflected a

similar designation creating an account “as joint tenants with

rights of survivorship and not as tenants in common”, whereby in

the event of death of one of the parties thereto, the “entire

interest” in the account would be vested in the survivor(s).

The agreements further made explicit that with respect to

joint accounts, all authority, obligations, and liability of the

tenants thereunder were joint and several. Any tenant could give

binding instructions with respect to assets in the account,

including buying, selling, or requesting distributions, and First

Southwest Company was entitled to rely on such instructions from

any tenant without further investigation. The agreements were

also covered by an express choice of law clause, to wit:

This Agreement and its enforcement shall be governed by
the laws of the state of Texas and shall cover
individually and collectively all accounts which the
undersigned has previously opened, now has open or may
open or reopen with FSWC, FSWC’S predecessor or any
introducing broker, and any and all previous, current
and future transactions in such accounts. * * *

Marco Listrom (Mr. Listrom) was the Valdes & Moreno broker

overseeing the account. Decedent contacted him in late 1999

seeking a broker to assist her in selling the recently acquired

eConnect stock. The account was funded on or about January 11,
 - 5 -

2000, through decedent’s signing over of the certificate for her

525,000 shares of eConnect to First Southwest Company for

transfer into the account. The value of the stock at that

juncture still did not exceed approximately 25 to 50 cents per

share. Mr. Greene contributed no property or funds to the

account at its inception or at any time thereafter.

The customer agreement used to open the account contained a

number of blanks to be completed with information pertaining to

the client, including Social Security number, address, telephone

number, date of birth, marital status, employer, bank reference,

etc. Decedent’s personal data was used to complete each such

field. The form also noted an approximate net worth of $50,000

and an absence of previous investment experience. The space for

initial transaction was marked “SELL” “ECNC”.

At some point after the account was established, decedent

expressed to Mr. Greene that she was interested in selling the

eConnect stock if it reached 50 cents per share. Mr. Greene then

decided to conduct some online research into the company and

product underlying the stock. He advised his mother that he

thought, based on the eConnect technology, that the shares had

the possibility of rising beyond her intended target and should

be held longer. As the stock later began to appreciate, Mr.

Greene participated in the excitement, tracking the rising price

online and communicating with decedent.
 - 6 -

Between January 24 and March 8, 2000, decedent placed sell

orders with Valdes & Moreno that resulted in the following sales

of eConnect shares:

Date Shares Sold Share Price Net Proceeds

1/24/00 25,000 $1.50 $36,746.75
1/24/00 20,000 1.50 29,397.00
3/07/00 60,000 10.56 629,976.88
3/08/00 152,500 15.00 2,278,271.75

In total, 257,500 shares were sold during this period for net

proceeds, after commissions, of $2,974,392.38.

After each of the foregoing sales, decedent submitted to

First Southwest Company a request for transfer of funds. On

January 24, 2000, she requested a wire transfer of $30,000 for

the benefit of R.V. World Hudson, Inc., which she used to

purchase a motor home for herself. Two wire transfer requests

were placed on January 25, 2000, one directing $9,000 to a bank

in Virginia for the benefit of Ms. Carnette and Ms. Carnette’s

husband, and the other directing $27,000 to a bank in Costa Rica

for decedent’s own benefit. Likewise, on March 16, 2000,

decedent requested a wire transfer to AmSouth Bank in Hudson,

Florida, for her own benefit, which transfer was completed on the

same date in the amount of $2,909,593.56. The latter transaction

removed from the Valdes & Moreno account the entire cash balance

and left only the remaining 267,500 shares of eConnect.

The day after the March 8, 2000, sale of eConnect, the

Securities and Exchange Commission apparently froze all trading
 - 7 -

in the stock. By March 31, 2000, the value had fallen to $1.47

per share and was still dropping. It continued falling and never

recovered any significant value during the period that shares

remained in the Valdes & Moreno account. Over the next few

years, decedent used the Valdes & Moreno account for occasional

trading activity of modest value. Decedent wrote personal checks

to facilitate such purchases from accounts at Wells Fargo.

Although the record does not permit any direct tracing of funds,

as no underlying documentation with respect to any Wells Fargo

account was introduced, the evidence supports that some portion

of the proceeds from the eConnect sales was eventually

transferred to an account or accounts at Wells Fargo entities and

that such accounts were in decedent’s name alone. The balance of

the cash generated by the limited trading activity taking place

after the 2000 eConnect sales was eventually distributed at

decedent’s request. First Southwest Company on April 29, 2003,

issued a check to decedent and Mr. Greene as joint tenants, using

decedent’s Florida address, in the amount of $4,584.05.

During 1999 and early 2000, decedent maintained her

permanent residence in Hudson, Florida, but lived for extended

periods in Costa Rica. Mr. Greene during early 2000 lived in an

apartment in Burbank, California. Ms. Carnette moved from

Woodbridge, Virginia, to Brunswick, Georgia, at some point during

2000. Following the eConnect sales and transfer of funds from
 - 8 -

the Valdes & Moreno account, decedent became interested in moving

to California. Mr. Greene assisted in the search for property,

and between late March and early May of 2000, a residence located

at 61 Mollison Drive in Simi Valley, California, was selected and

purchased for approximately $645,000. Decedent paid for the home

in cash principally by means of wire transfer from one or more of

the accounts into which she had placed funds originating from the

eConnect sales.

During the process of buying the property in California,

decedent proposed that Mr. Greene reside with her in the Simi

Valley home, apparently in part to facilitate efforts by

Mr. Greene to start his own small business in the software

development field. Deed to the property was taken in the names

“ERNEST GREENE, a Single Man and FRANCES ELAINE FREEDMAN, an

Unmarried Woman as Joint Tenants”. Likewise, escrow documents

and a buyer walk-through inspection form reflected both Mr.

Greene and decedent as buyers.

Decedent and Mr. Greene lived together until early 2002,

when decedent moved back to Florida and the Simi Valley home was

sold. Prior to that sale, Mr. Greene executed a quitclaim deed

to decedent of any interest he held in the property, and decedent

gave him $10,000 to help defray costs of relocation. While they

were residing together, decedent also contributed an amount

between $25,000 and $50,000 to Mr. Greene’s business venture, and
 - 9 -

two 2000 Nissan Xterras were purchased, one for decedent and the

other for Mr. Greene. Decedent paid property taxes and insurance

costs associated with the Simi Valley property. Mr. Greene did

not pay rent but contributed towards general maintenance

expenses.

Ms. Carnette came to California in March of 2002 and

assisted decedent in moving back to Florida. After returning,

decedent purchased a house at 24140 Powell Road in Brooksville,

Florida, which served as her principal residence until her death.

Decedent also acquired property, apparently indirectly through a

corporation, in Sint Maarten, Netherlands Antilles.

Tax Reporting and Examination

First Southwest Company issued a “2000 COMPOSITE STATEMENT

OF 1099 FORMS” with respect to the Valdes & Moreno account. The

document was issued to “FRANCES ELAINE FREEDMAN & ERNEST GREENE

JTWROS” at the Simi Valley address and reflected decedent’s

Social Security number. It showed interest of $1,261.18 and

total gross proceeds less commissions from the eConnect sales of

$2,974,392.38.

In March of 2001, James E. Gill (Mr. Gill), a certified

public accountant in California, met with decedent and Mr. Greene

regarding preparation of decedent’s personal income tax return

for 2000. Using information supplied by decedent and/or Mr.

Greene, Mr. Gill completed decedent’s Form 1040, U.S. Individual
 - 10 -

Income Tax Return, for 2000. The return was signed by decedent

and Mr. Gill on April 11, 2001, and filed with the Internal

Revenue Service (IRS). The Form 1040 was accompanied by a

Schedule D, Capital Gains and Losses, that reflected the sale of

257,500 shares of eConnect, with an acquisition date of

September 8, 1998, a basis of zero, and resultant long-term

capital gain of $2,974,393. The return also reported interest

and dividend income received with respect to various financial

accounts, including accounts at AmSouth, Dean Witter Reynolds,

Fiserv, Valdes & Moreno, and Wells Fargo. Decedent did not file

a gift tax return for 1999, 2000, 2001, 2002, or 2003.

Mr. Greene filed a Form 1040 for 2000 prepared by an

individual not associated with Mr. Gill’s firm. The return

reported no capital gain or loss and no interest or dividends.

Mr. Greene’s return was subsequently selected for examination by

the IRS, but the audit in mid-2002 yielded no recommended

changes.

By early 2003, decedent’s 2000 income tax return was

likewise under examination. In April of 2003, decedent executed

a Form 2848, Power of Attorney and Declaration of Representative,

authorizing Mr. Gill to represent her in connection with the 2000

audit. Following decedent’s intervening death on June 17, 2003,

Mr. Gill continued review of the 2000 return and obtained

additional documentation from the estate. That review led him to
 - 11 -

conclude that the 2000 reporting should be altered in two

respects. First, having learned that the eConnect stock was

acquired in 1999, rather than 1998, Mr. Gill realized that the

gain generated upon disposition was short term in nature.

Second, based upon the fact that the Valdes & Moreno account was

jointly held by decedent and Mr. Greene, Mr. Gill was of the

opinion that the gain should have been split evenly between the

two joint tenants.

The IRS disagreed that the gain was so divisible and on

January 15, 2004, issued to decedent a notice of deficiency

determining the aforementioned deficiency and accuracy-related

penalty. The notice reflected two adjustments: Interest income

was increased by $975 reported to the IRS by Wells Fargo Bank,

and the eConnect sales were reclassified as resulting in short-

term capital gain.

Shortly thereafter, the estate submitted to the IRS a Form

1040X, Amended U.S. Individual Income Tax Return, on behalf of

decedent for the year 2000. Mr. Gill prepared the amended return

incorporating only one-half of the proceeds from the eConnect

sales but treating the concomitant capital gains as short term.

The net effect was a decrease in total tax of $21,451, for which

the estate requested a refund. The amended return was received

by the IRS on February 9, 2004, but was not processed. A notice
 - 12 -

of claim disallowance was also sent denying the $21,451 refund in

full.

Death and Probate Proceedings

Approximately 2 weeks prior to her June 17, 2003, death,

decedent had telephoned Ms. Carnette and asked her to come to

Sint Maarten, where decedent was in the hospital. Ms. Carnette

did so and was with decedent until her death. During that

period, on June 16, 2003, decedent executed a will appointing Ms.

Carnette as sole heiress, executrix, and administrator of

decedent’s estate.

The just-mentioned will was admitted to probate in the

Circuit Court for Hernando County, Florida, and Ms. Carnette was

appointed personal representative in late 2003. Her petition for

administration contained a listing of estate assets that

included, among other items, the Brooksville, Florida, property

($425,000); a 2000 Nissan ($8,000); a 1988 Holiday Rambler travel

trailer ($18,000); bank accounts at SunTrust ($82,461); and

portfolio accounts at Wells Fargo ($431,587.75) and Valdes &

Moreno ($2,286.50). Mr. Greene then filed suit in the Superior

Court for Los Angeles County, California, in early 2004,

contending that decedent’s property should pass in accordance

with a pourover will and trust executed by decedent in California

on July 7, 2000, that purportedly left all assets to Mr. Greene.
 - 13 -

Contentious litigation between the siblings over decedent’s

estate ensued and remained unresolved as of at least mid-2006.

Tax Court Proceedings

A timely petition disputing the notice of deficiency was

filed with this Court on April 14, 2004. Both in the petition

and in subsequent stipulations the estate has conceded: (1) That

an additional $975 of interest income was received by decedent in

2000 but not reported on her original return, and (2) that the

sales of eConnect shares during 2000 did not qualify for long-

term capital gain treatment. Following a 2-day trial in November

of 2005, the parties filed posttrial briefs. Respondent on

opening brief conceded the accuracy-related penalty under section

6662(a) asserted in the notice of deficiency. Accordingly, none

of the specific adjustments made in the notice of deficiency

remain in dispute. The estate, however, continues to propound

the argument first raised during the audit that the estate is

entitled to report only one-half of the capital gain generated by

the eConnect sales and, correspondingly, to receive a refund in

the approximate amount of $21,000.2

Simultaneously with the filing of its reply brief on

June 8, 2006, the estate filed a motion to reopen the record for

2
The Court notes that to the extent that the petition seeks
reasonable administrative and/or litigation costs pursuant to
sec. 7430, any such claim is premature and will not be further
addressed. See Rule 231.
 - 14 -

receipt of two additional exhibits. Respondent thereafter filed

an objection to the motion.

OPINION

I. General Rules

A. Federal Taxation Principles

The Internal Revenue Code imposes a Federal tax on the

taxable income of every individual. Sec. 1. Section 61(a)

specifies that gross income for purposes of calculating such

taxable income means “all income from whatever source derived”.

Encompassed within this broad pronouncement are all “undeniable

accessions to wealth, clearly realized, and over which the

taxpayers have complete dominion.” Commissioner v. Glenshaw

Glass Co., 348 U.S. 426, 431 (1955). More particularly, gains

derived from dealings in property, interest, and dividends are

expressly enumerated as falling under the purview of section

61(a). Sec. 61(a)(3), (4), (7).

As a corollary, it is blackletter law that gains derived

from property are taxable to the owner of the property. See,

e.g., Commissioner v. Court Holding Co., 324 U.S. 331, 334

(1945); Salvatore v. Commissioner, 434 F.2d 600, 601-602 (2d Cir.

1970), affg. T.C. Memo. 1970-30; Waltham Netoco Theatres, Inc. v.

Commissioner, 401 F.2d 333, 334-335 (1st Cir. 1968), affg. 49

T.C. 399 (1968); Martin Ice Cream Co. v. Commissioner, 110 T.C.

189, 212-213 (1998); Steubenville Bridge Co. v. Commissioner, 11
 - 15 -

T.C. 789, 798 (1948). Property ownership, in turn, is determined

by State law, consistent with the overarching principle that

State law creates legal rights and property interests while

Federal law determines how the rights and interests so created

shall be taxed. Morgan v. Commissioner, 309 U.S. 78, 80-81

(1940).

B. State Law Regarding Joint Accounts

The parties to the instant litigation do not dispute that

the relevant State law for purposes of this case is that of

Texas. In 1979, Texas adopted provisions derived from article VI

of the Uniform Probate Code governing multiple-party accounts,

codified at Tex. Prob. Code Ann. secs. 436-449 (Vernon 2003).

See Stauffer v. Henderson, 801 S.W.2d 858, 862-863 (Tex. 1990).

As pertinent here, Tex. Prob. Code Ann. sec. 436 defines

“Multiple-party account” to include “a joint account” and “Joint

account” to mean “an account payable on request to one or more of

two or more parties whether or not there is a right of

survivorship.” Accounts at brokerage firms are expressly placed

within the scope of the statutory scheme. Id. Tex. Prob. Code

Ann. sec. 437 then clarifies the reach of the ensuing provisions,

as follows:

Sec. 437. Ownership as Between Parties and Others

The provisions of Sections 438 through 440 of this
code that concern beneficial ownership as between
parties * * * of multiple-party accounts, are relevant
only to controversies between these persons and their
 - 16 -

creditors and other successors, and have no bearing on
the power of withdrawal of these persons as determined
by the terms of account contracts.

Next, the just-referenced Tex. Prob. Code Ann. sec. 438,

entitled “Ownership During Lifetime”, directs in subsection (a)

(hereinafter TPC 438(a)) thereof: “A joint account belongs,

during the lifetime of all parties, to the parties in proportion

to the net contributions by each to the sums on deposit, unless

there is clear and convincing evidence of a different intent”.

Finally, Tex. Prob. Code Ann. sec. 439 completes the general

structure, governing rights of survivorship and disposition of

sums remaining on deposit at the death of a party to a joint

account.

II. Analysis

Given the foregoing backdrop, the outcome of the instant

litigation turns largely upon application of TPC 438(a). The

documentation with respect to the Valdes & Moreno account

establishes its status as a joint account at a financial

institution within the meaning of the Texas Probate Code.

Moreover, the instant litigation is concerned with ownership as

between the parties of this multiple-party account in the context

of a controversy between one of these parties and a creditor,

namely the IRS. That is precisely the type of situation that

Tex. Prob. Code Ann. sec. 437 specifies is governed by TPC 438(a)

and following provisions. Respondent and the estate, however,
 - 17 -

have very different views as to the result that should obtain

from applying TPC 438(a) here.

It is respondent’s position that the record in this case

establishes both that decedent contributed all the property

placed in the Valdes & Moreno account and that she did not intend

at the time she opened and funded the account to make a gift of

eConnect stock to Mr. Greene. The estate, in contrast, while not

disputing the applicability of TPC 438(a),3 argues that decedent

clearly intended to effect a gift of one-half of the eConnect

stock to Mr. Greene by placing it in the joint account. The

estate also points to a presumption in Texas common law that a

parent intends to make a gift to a child upon delivering

possession, conveying title, or purchasing property in the name

of the child.

As previously quoted, TPC 438(a) legislates ownership of

joint accounts during life in proportion to respective

contributions, absent clear and convincing proof of a contrary

intent. The evidence here is unequivocal in showing that all of

the eConnect stock funding the Valdes & Moreno account was

contributed by decedent and that Mr. Greene at no time placed any

of his personal assets in the account. Hence, the focus of this

3
Although the estate failed to cite or mention TPC 438(a)
on opening brief, the estate’s reply brief and subsequent motion
to reopen the record quote and discuss the statute in a manner
presumptive of its applicability and never so much as allege that
TPC 438(a) is not operative here.
 - 18 -

case can be narrowed particularly to application of the

“different intent” exception.

In construing provisions of the Texas Probate Code derived

from the Uniform Probate Code, Texas courts have looked to

corresponding provisions in the uniform act, considering the

degree of textual similarity and taking guidance from the

comments accompanying the uniform laws. See, e.g., Stegall v.

Oadra, 868 S.W.2d 290, 293 (Tex. 1993); Stauffer v. Henderson,

supra at 863; Dickerson v. Brooks, 727 S.W.2d 652, 654 (Tex. App.

1987). The language of TPC 438(a) is identical to that of Unif.

Probate Code sec. 6-103(a) (1969 Act), 8 U.L.A. (Part II) 464

(1998), the attendant comment of which reads in relevant part:

This section reflects the assumption that a person
who deposits funds in a multiple-party account normally
does not intend to make an irrevocable gift of all or
any part of the funds represented by the deposit.
Rather, he usually intends no present change of
beneficial ownership. The assumption may be disproved
by proof that a gift was intended. * * * It is
important to note that the section is limited to
describe ownership of an account while original parties
are alive. Section 6-104 prescribes what happens to
beneficial ownership on the death of a party. The
section does not undertake to describe the situation
between parties if one withdraws more than he is then
entitled to as against the other party. Sections 6-108
and 6-112 protect a financial institution in such
circumstances without reference to whether a
withdrawing party may be entitled to less than he
withdraws as against another party. Presumably,
overwithdrawal leaves the party making the excessive
withdrawal liable to the beneficial owner as a debtor
or trustee. Of course, evidence of intention by one to
make a gift to the other of any sums withdrawn by the
other in excess of his ownership should be effective.
 - 19 -

The final Code contains no provision dealing with
division of the account when the parties fail to prove
net contributions. The omission is deliberate.
Undoubtedly a court would divide the account equally
among the parties to the extent that net contributions
cannot be proven; but a statutory section explicitly
embodying the rule might undesirably narrow the
possibility of proof of partial contributions and might
suggest that gift tax consequences applicable to
creation of a joint tenancy should attach to a joint
account. The theory of these sections is that the
basic relationship of the parties is that of individual
ownership of values attributable to their respective
deposits and withdrawals; * * *

The just-quoted comment elucidates that the “different

intent” contemplated by the exception contained in TPC 438(a) is

an intent to make a gift. Stated otherwise then, the necessary

showing required to override the rule of ownership in proportion

to contributions is clear and convincing proof that a gift was

intended. Moreover, the comment drives home that since the

opening of a joint account and the depositing of assets therein

are inherent in any scenario covered by the statute, these facts

play no role in establishing the requisite intent to meet the

exception.

Under Texas law, clear and convincing evidence demands

“‘that measure or degree of proof which will produce in the mind

of the trier of fact a firm belief or conviction as to the truth

of the allegations sought to be established.’” In re G.M., 596

S.W.2d 846, 847 (Tex. 1980) (quoting State v. Addington, 588

S.W.2d 569, 570 (Tex. 1979)); see also Oadra v. Stegall, 871

S.W.2d 882, 891 (Tex. App. 1994). This burden falls on the party
 - 20 -

claiming that a gift has been made.4 Oadra v. Stegall, supra at

891. Extrinsic or parol evidence is typically inadmissable to

prove the nature of an account for purposes of the Texas Probate

Code but is not proscribed on questions of the ownership and

capacities of parties to such an account. Stegall v. Oadra,

supra at 294; Oadra v. Stegall, supra at 894.

Texas courts adhere to a requirement of three elements as

necessary to establish the existence of a gift: (1) Intent to

make a gift; (2) delivery of the property; and (3) acceptance of

the property. Dorman v. Arnold, 932 S.W.2d 225, 227 (Tex. App.

1996); Grimsley v. Grimsley, 632 S.W.2d 174, 177 (Tex. App.

1982). Given that these requirements are stated in the

conjunctive and that the emphasis of TPC 438(a) is on the issue

of intent, focus at the outset on the first-listed element is

appropriate here.

The estate cites a litany of circumstances in an effort to

show that decedent intended by placing her eConnect stock in the

joint account to make a gift to Mr. Greene.5 This alleged

4
The State law rules on placement of burden relevant in
this case dovetail with the typical rule in tax litigation that
the burden of proof rests on the taxpayer generally and on the
party raising any new matter particularly. See Rule 142(a).
Although sec. 7491(a) can effect a shift of burden in specified
circumstances, the estate makes no argument that the statute has
any application here and has not addressed the preconditions for
its use.
5
The estate also directs the Court’s attention to a number
(continued...)
 - 21 -

evidence can be grouped roughly into five general categories.

The first incorporates documents involved in the opening and

routine administration of the Valdes & Moreno account. For

example, the estate notes the assignment of the eConnect stock

certificate to First Southwest Company, the Valdes & Moreno

customer agreement, the joint account agreement, the margin and

short agreement, the monthly account statements, the sale

confirmation statements, the composite Form 1099, and the check

issued in 2003 by First Southwest Company of the remaining cash

balance in the Valdes & Moreno account. The estate alleges that

these documents are probative in that they reflect the names of

both decedent and Mr. Greene as parties to the account and/or by

their terms afford to decedent and Mr. Greene equal rights and

authority to deal with the account.

5
(...continued)
of Texas cases, the majority of which: (1) Construe State law
prior to enactment of the current Texas Probate Code; (2) deal
more generally with gift issues outside the specialized context
of the operative joint account rubric; and/or (3) pertain to
issues of ownership in controversies between parties to joint
accounts, a matter expressly not covered by TPC 438(a) and
related provisions, rather than ownership in controversies vis-a-
vis creditors. The bulk of this material is not germane to the
Court’s disposition here, or at best marginally relevant and
cumulative, and will not be further addressed. As noted by the
Supreme Court of Texas in an opinion construing the related
provision of Tex. Prob. Code Ann. sec. 439 (Vernon 2003),
enactment of the Texas Probate Code served to replace “the
various legal theories” which had been used in analyzing joint
account matters and were “difficult to reconcile”. Stauffer v.
Henderson, 801 S.W.2d 858, 862-863 (Tex. 1990).
 - 22 -

Undoubtedly, the foregoing evidence and like documentation

might be highly probative were the aim to establish existence of

a joint account. That point, however, is undisputed. The

instant inquiry is already taking place under the rubric of TPC

438(a). Because that provision operates solely in the context of

joint accounts, documentation showing accounts titled in the

names of multiple parties and conferring on them contractual

rights vis-a-vis a financial institution is presumed and inherent

in all cases. Accordingly, the clear and convincing evidence

referenced in the exception must demand something more. The

estate’s reliance on materials of this nature is therefore

misplaced and carries little, if any, weight in establishing

decedent’s intent to make a gift. In fact, the exclusive use of

decedent’s personal information in filling out the customer

agreement could cut the other way.

The second general category of circumstances pressed by the

estate relates to Mr. Greene’s claimed management of and control

over the Valdes & Moreno account. The estate mentions that Mr.

Greene conducted “due diligence” with respect to the eConnect

shares, attended eConnect shareholder meetings, consulted and

jointly made decisions with decedent regarding the account,

recommended when to sell the eConnect stock, shared in the

excitement of the rising price and sale, opened mail related to

the account, was the subject of purported comments by decedent
 - 23 -

referring to the money as theirs, and later handled liquidation

of the account by “initiat[ing] the movement of the money from

Valdes & Moreno, Inc. to Wells Fargo where the money still is,

via some mere stops along the way at some Florida banks.”

Attempted review of these alleged circumstances, however,

highlights a key problem with the record in this case. The noted

details are drawn largely from uncorroborated testimony of

Mr. Greene, whose testimony in general the Court finds to be

singularly lacking in credibility. We have before us testimony

by Mr. Greene taken in three contexts; i.e., his deposition from

October of 2004 in the Florida probate litigation, his statements

on direct examination at the trial of this Tax Court case as a

witness for respondent, and his responses on cross-examination by

counsel for the estate. Comparison reveals that Mr. Greene’s

overall position in the probate litigation is essentially the

opposite of his stance as a witness for respondent.

His deposition testimony is geared towards emphasizing his

involvement in all that relates to the eConnect shares, so as to

challenge the will being probated and to establish an interest in

decedent’s property. In this Court, his comments are shaded

towards distancing himself from any interest in the stock and

concomitant taxable gain. The result is two inconsistent

presentations, with the intersection between the two represented

by unconvincing attempts on cross-examination to explain apparent
 - 24 -

contradictions. The Court therefore is unable to rely on much of

Mr. Greene’s testimony, particularly when it comes to his

management of or control over the stock sales and Valdes & Moreno

account, where some of the most marked discrepancies arise.

Thus, while statements by Mr. Greene might be sufficient to

show that he assisted decedent by researching, tracking, and

making recommendations about the eConnect shares, his comments

fall short of establishing any genuine management and control.

Furthermore, the documentary record supports that any time an

actual sales call or request to transfer funds was made, it was

decedent’s personal action that formally initiated the

transaction. Shared excitement and casual use of plural pronouns

are hardly a substitute for the complete dearth of documentary

evidence to show Mr. Greene making even one order with respect to

the account. Notably, the estate tries to minimize the

significance of decedent’s prompt transfer of the sales receipts

out of the Valdes & Moreno account by claiming that Mr. Greene

“initiated the movement”. Suffice it to say that the attempt,

conclusory, self-serving, and unsupported, fails to blunt one of

the key objective facts in this litigation--that shortly after

the eConnect sales, decedent ordered Valdes & Moreno to transfer

the proceeds to other accounts that the record indicates were in

her name alone.
 - 25 -

The third category of circumstances cited by the estate

pertains to alleged evidence that Mr. Greene “benefited

substantially” from the eConnect transactions. Included in this

category are the joint purchase and rent-free occupation of the

Simi Valley home, as well as Mr. Greene’s receipt of: (i)

$30,000 for his business; (ii) a Nissan Xterra; and (iii) $10,000

for later relocation from the Simi Valley home. Again, however,

much of this claimed evidence is testimonial and suffers from the

same shortcomings just discussed.

Mr. Greene’s statements concerning his role in the

negotiations on the house and the acquisition of the Xterra are

particularly nebulous and fraught with inconsistencies, and his

eventual execution of a quitclaim deed for the house undercuts

any understanding between those involved of a true and intended

ownership interest. Regardless, the salient feature is that all

of these transactions occurred after decedent transferred the

eConnect proceeds out of the Valdes & Moreno account into other

accounts of her own. At most the benefits portray an intent to

share her wealth by giving specific, limited gifts to her son at

times subsequent to the eConnect windfall. They do not reflect a

scenario where ownership of half the wealth by Mr. Greene was a

fait accompli because she had previously given him the underlying

stock before it was sold.
 - 26 -

The fourth category of circumstances raised by the estate

pertains to the events and documents that are the subject of the

estate’s motion to reopen the record. The estate asks the Court

to permit submission of three additional documents, incorporated

into two exhibits: (1) Exhibit 46-P, copies of decedent’s

purported July 7, 2000, pourover will and family trust; and (2)

Exhibit 47-P, a copy of a motion for partial summary judgment

filed by Mr. Greene in the Florida probate litigation.

Reopening the record for the submission of additional

evidence is a matter within the discretion of the trial court.

Zenith Radio Corp. v. Hazeltine Research, Inc., 401 U.S. 321, 331

(1971); Butler v. Commissioner, 114 T.C. 276, 286-287 (2000).

The standard for doing so may be summarized as follows: “A court

will not grant a motion to reopen the record unless, among other

requirements, the evidence relied on is not merely cumulative or

impeaching, the evidence is material to the issues involved, and

the evidence probably would change the outcome of the case.”

Butler v. Commissioner, supra at 287.

The items proffered in the estate’s motion to reopen the

record fall short of the foregoing standard. Even if admitted,

the documents would not alter the outcome in this case. The

estate contends that the pourover will and family trust show

decedent’s “donative intent that Mr. Greene own one-half of all

that she had in 2000, the year of the subject sale which produced
 - 27 -

the taxable gain in this case.” These documents, however,

actually weigh against the estate’s position here. Critically,

they were executed after decedent had transferred the

overwhelming majority of the eConnect sales proceeds to other

accounts owned individually by her, including apparently various

accounts at Wells Fargo. A number of accounts at Wells Fargo and

Dean Witter are among the assets listed on the schedule of

property placed in the trust, as is the Simi Valley residence.

Terms of the trust, which is revocable by decedent, operate to

apply the property for decedent’s benefit during life and to

distribute the assets to Mr. Greene only upon her death.

Consequently, as of July of 2000, decedent was behaving as

if the property generated by the eConnect sales was still under

her control and hers to give away at her death, not as if half

was already owned by Mr. Greene. Such would seem to belie an

intent to gift the underlying stock upon funding of the Valdes &

Moreno account in January of 2000. The motion for summary

judgment, which seeks a ruling based on the alleged validity of

the pourover will and trust, is no more helpful to the estate and

is even less probative, a mere litigating position in another

proceeding. The admission of these materials would therefore do

little, if anything, to provide support for the stance taken by

the estate here.
 - 28 -

Furthermore, even if the documents buttressed the estate’s

argument, denial of their admission would be appropriate on

grounds of prejudice to respondent. By submitting the documents

after trial, the estate deprived respondent of any opportunity to

examine or question them during the proceeding. In fact, the

items were not proffered until after respondent had filed both

opening and reply briefs. Furthermore, it is clear from the

record that the will and trust documents were available to the

estate at least a year prior to trial in the instant case. The

estate offers no explanation or excuse as to why the materials

could not have been exchanged and dealt with in accordance with

the procedures set forth in Rule 91 and the Court’s standing

pretrial order. We normally do not countenance such tardiness.

The Court will deny the estate’s motion to reopen.

The fifth category drawn upon by estate is the familial

relationship between decedent and Mr. Greene and the presumption

related thereto under Texas law. As stated in the following oft-

cited pronouncement, Texas courts adhere to a rule under which:

“There is, however, a presumption that a parent intends to make a

gift to his child if the parent delivers possession, conveys

title, or purchases property in the name of a child.” Woodworth

v. Cortez, 660 S.W.2d 561, 564 (Tex. App. 1983); see also

Richardson v. Laney, 911 S.W.2d 489, 492 (Tex. App. 1995); Oadra

v. Stegall, 871 S.W.2d at 891; Masterson v. Hogue, 842 S.W.2d
 - 29 -

696, 697 (Tex. App. 1992). The presumption is rebuttable by

clear and convincing evidence. Richardson v. Laney, supra at

492; Masterson v. Hogue, supra at 697; Kyles v. Kyles, 832 S.W.2d

194, 197 (Tex. App. 1992).

Although research has not revealed any Texas cases directly

addressing the propriety of using this presumption in the context

of joint account matters controlled by TPC 438(a) and related

provisions, the Court for the sake of argument will assume its

potential applicability here. Accordingly, we consider the

sufficiency of the evidence offered by respondent to overcome any

presumption of donative intent.

In contrast to the weak and suspect nature of the

circumstances relied upon by the estate in an attempt to show

donative intent, as discussed above, the more objective evidence

in the record leans strongly in the opposite direction. As

alluded to previously, one of the most salient facts here is that

within days of each relevant sale of eConnect shares, decedent

wired the proceeds out of the joint account. The March 16, 2000,

transfer of $2,909,593.56 into a personal account at AmSouth Bank

is particularly revealing. Moreover, none of the investment

accounts in which the proceeds subsequently came to rest is

purported to be any type of joint account over which Mr. Greene

possessed even formal authority. Such actions are nearly

impossible to reconcile with the idea of shares’ having been
 - 30 -

given to Mr. Greene 3 months earlier. Again, the limited later

gifts of comparatively small monetary amounts likewise belie a

preceding gratuitous transfer of the underlying shares, as does

the quitclaim deed of Mr. Greene’s interest in the Simi Valley

residence.

In addition to the positive inferences which may be drawn

from the numerous instances in which decedent did act to exercise

dominion over activity in the Valdes & Moreno account and the

funds generated by the eConnect sales (i.e., as to all material

transactions prior to her death, making all eConnect buy and sell

calls to the broker, wiring the resultant funds, giving

particular gifts to her children, etc.), negative inferences

arise from the lack of any such activity on the part of

Mr. Greene. The record contains no specific evidence of any

instance in which Mr. Greene exercised any formal authority over

the contents of the joint account. Even his testimony portrays a

role only akin to that of an adviser.

Also highly probative is the contemporaneous tax reporting

by both decedent and Mr. Greene. Positions taken in a tax return

may be treated as admissions and may be disavowed only by cogent

proof that they are incorrect. Waring v. Commissioner, 412 F.2d

800, 801 (3d Cir. 1969), affg. T.C. Memo. 1968-126; Mendes v.

Commissioner, 121 T.C. 308, 312 (2003); Estate of Hall v.

Commissioner, 92 T.C. 312, 337-338 (1989).
 - 31 -

On her original 2000 income tax return, decedent reported

selling all 257,500 shares. She further did not file a gift tax

return for 2000. Consistent with his mother’s treatment,

Mr. Greene did not report any sale of shares on his 2000 return.

The change in position to that reflected in decedent’s amended

return transpired only after her death, at a time when she could

no longer speak to her intentions regarding the eConnect stock

and the Valdes & Moreno account. Decedent’s own representations

on a return she reviewed and signed are decidedly more persuasive

than recharacterizations by others nearly 3 years later, not to

mention after an IRS assertion of additional tax due.

Given the entire record in this case, the Court therefore

concludes that the evidence is sufficient to rebut any

presumption, arising due to a parent-child relationship, that a

gift was intended. Hence, the circumstances cited by the estate,

whether viewed individually or as a collective whole, fail to

afford clear and convincing evidence of an intent to make a gift

to Mr. Greene upon decedent’s establishment and funding of the

disputed joint account, as mandated by TPC 438(a). Consideration

of the remaining elements of a gift, i.e., delivery and

acceptance, is unnecessary. The general rule of TPC 438(a) thus

applies to accord ownership of the eConnect stock in proportion

to the respective contributions of the parties to the joint

account. The result is that decedent owned all the shares at the
 - 32 -

time of the sales underlying this litigation, and she alone is

taxable on the gain generated thereby.

To reflect the foregoing and concessions made by the

parties,

An appropriate order and

decision will be entered.