Free form stock certificate

Taxable Distribution Not Delayed Until New Stock Certificate Issued

* Oison, T.C. Memo. 2004-197

Mere failure to change a certificate number underlying stock in an IRA did not delay a taxable distribution, the Tax Court recently found. Taxation is not so much concerned with the refinements of title as it is with actual command over the property, the court reiterated.

Basis of dispute

The taxpayer's brother owned an IRA. He died and bequeathed the IRA to the taxpayer. Both the brother and the sister had accounts with the same brokerage firm.

The 1RS determined that the taxpayer had received a taxable distribution in the year ajournai entiy was made by the brokerage firm. The brokerage firm thought so too, issuing a Form 1099-R information return for that year.

* Comment. Only IRA rollovers to surviving spouses are permitted tax free. Here, as the decedent's sister, the distribution was taxable as if distributed to the decedent while still living.

The taxpayer countered that the stock certificate underlying the shares had not changed to reflect a change in ownership in the year of distribution. Therefore, she should not be liable for tax until the year it changed. Moreover, the certificate prohibited any transfer of the shares unless registered.

Time of distribution

Any failure to change the certificate number was irrelevant, the court found. Recording a change in ownership is merely a ministerial act. Transactions are evidenced by many means. Here, the taxpayer had signed a "distribution request," she was the party who had requested the issuance of the new certificates, and she had the benefits of the brokerage firm's journal entry of the value of the shares being in her account for 10 months in the tax year under dispute.

While Rev. RuI. 81-158 held that a transfer of stock occurs when the transfer agent is directed to reissue shares in the name of the new owner, the court refused to read that ruling more broadly to hold that a transfer of stock may occur only when a transfer agent receives such direction.

References: CCHDec. 55,734(M); FED ??48,149(M); FTS ?¡ìC:22.202.