119 T.C. No. 6 UNITED STATES TAX COURT ROBERT ANCIRA, Petitioner v .

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 425-01. Filed September 24, 2002.

P had a self-directed IRA account of which C was the custodian. P requested that C purchase common stock in X for the IRA. Although the investment in X stock was not prohibited, C, as a matter of policy, refused to purchase the stock because X was not publicly traded. P arranged for C to issue a check drawn on the IRA account made payable to X. C sent the check to P, who forwarded it to X. X issued the stock in the name of P’s IRA. P received X’s stock and delivered the stock to C. R determined that there was a distribution from the IRA to P.

Held

: P was a conduit for C, and there was no distribution from the IRA to P. Lemishow v. Commissioner , 110 T.C. 110 (1998), distinguished.

David Bruce Spizer

, for petitioner.

Emile L. Hebert III and Louis John Zeller, Jr.

, for respondent.

stated that “(Use of this form will result in a distribution reportable to the IRS [Internal Revenue Service] on Form 1099-R [Distributions From Pensions, Annuities, Retirement or ProfitSharing Plans, IRAs, Insurance Contracts, etc.]).” On September 14, 1998, petitioner executed the form requesting Pershing to issue a $40,000 check made payable to S.K. and instructed that the check constituted an investment of his IRA assets. Pershing sent petitioner a confirmation letter indicating that a distribution of $40,000 had occurred on September 15, 1998, and instructed petitioner to contact Pershing if he had any questions. On the same day, Pershing issued the $40,000 check payable to S.K. drawn on petitioner’s IRA account. Pershing sent the check to petitioner. Petitioner did not negotiate the check. Instead, petitioner forwarded the check directly to S.K.

A “Memorandum of Corporate Stock Purchase” maintained by

S.K. reflected that, on October 29, 1998, petitioner’s IRA purchased 714.28 shares of stock for $40,000. On December 1, 1998, S.K. issued stock certificate No. 3. The certificate stated that “IRA fbo ROBERT ANCIRA, M.D. DLJSC. is the owner” of 714.28 shares. For reasons that are not clear, the stock was not immediately transferred to Pershing or to petitioner. Petitioner was unaware that Pershing did not have the stock until much later. When petitioner learned that the stock had not been transferred to Pershing, which was after the notice of deficiency was issued, he contacted S.K. and had the certificate sent to him. Petitioner then delivered the stock to Pershing, and the stock was accepted by Pershing and placed in petitioner’s IRA account.

For petitioner’s 1998 Federal income tax year, Pershing issued petitioner a Form 1099-R, indicating that a $40,000 distribution had been made to petitioner. Petitioner did not report this $40,000 transaction on his 1998 Federal income tax return.

Respondent determined that the check issued by Pershing on

September 14, 1998, constituted a distribution from the IRA to petitioner and was includable in income under sections 408(d) and 72. Respondent also imposed the section 72(t) 10-percent additional tax.

Discussion

Section 408(d)(1) provides that “any amount paid or distributed out of an individual retirement plan shall be included in gross income by the * * * distributee * * * in the manner provided under section 72.” Respondent argues that petitioner’s completion of the distribution request form and the resulting issuance of the $40,000 check constituted a distribution to petitioner under section 408(d)(1).

Neither the Internal Revenue Code nor the applicable regulations provide specific guidance on whether an amount is considered to have been “paid or distributed out of an individual retirement plan” in the circumstances here. If, on petitioner’s instructions, Pershing had paid the $40,000 to S.K. for its stock, there simply would have been an investment in an asset of the IRA, and there would have been no question whether there had been a distribution to petitioner. Similarly, if Pershing had delivered the check to a broker who had purchased the shares for petitioner’s IRA account, there would have been no distribution. The broker would have been Pershing’s agent. The question then is whether, when Pershing delivered the check made out to S.K. to petitioner, who in turn delivered it to S.K. to purchase the stock for the IRA account, there was a distribution to petitioner. We point out that the question does not involve whether there was a nontaxable rollover of the IRA assets within the period specified by section 408(d)(3).

In Diamond v. Commissioner

, 56 T.C. 530, 541 (1971), affd.

492 F.2d 286 (7th Cir. 1974), we noted: “We accept as sound law the rule that a taxpayer need not treat as income moneys which he did not receive under a claim of right, which were not his to keep, and which he was required to transmit to someone else as a mere conduit.”

While the considerations in Diamond may have been different, we believe that our observation is applicable here. From our perspective, the soundest view of this case is that petitioner acted as a conduit for Pershing by both arranging the stock purchase and ensuring that the check was delivered to S.K. The IRA was a custodial account, and Pershing was the trustee thereof, as well as the holder of the assets in the account. Sec. 408(h); sec. 1.408-2(d), Income Tax Regs. Petitioner exercised his right, under the IRA agreement, to direct investments of the IRA assets by requesting that Pershing invest a portion of his IRA assets in S.K. stock. Because of Pershing’s policy not to purchase securities that are not publicly traded, petitioner acted as a conduit for Pershing in arranging the investment. The check was payable to and negotiated by S.K. The stock was issued to the IRA account.

Petitioner’s actions as the IRA trustee’s agent consisted of insuring that the check was delivered to S.K. We are not aware of any provisions of the Internal Revenue Code, applicable regulations, or case law that prohibit a taxpayer from acting as a conduit for an IRA trustee under the circumstances presented here. We further note that it cannot be argued cogently that petitioner was in constructive receipt of the assets represented by the transaction. See Estate of Brooks v. Commissioner , 50 T.C. 585 (1968). “Its essence [of constructive receipt] is that funds which are subject to a taxpayer’s unfettered command and which he is free to enjoy at his option are constructively received by him whether he sees fit to enjoy them or not.” Id. at 592. Specifically, under Louisiana law, petitioner was not a holder of and could not negotiate the check. La. Rev. Stat. Ann. secs. 10:1-201 (defining a holder); 10:3-201 (defining negotiation); 10:3-301 (defining an individual entitled to enforce an instrument) (West 1993). Petitioner’s actions as a conduit for the IRA trustee in these limited circumstances violated no prohibition regarding a taxpayer’s relationship to his IRA and, therefore, did not result in a distribution. Respondent argues that this transaction is controlled by Lemishow v. Commissioner , 110 T.C. 110 (1998). In Lemishow the taxpayer made withdrawals from retirement accounts, invested the distributions in stock, and contributed the stock to a new IRA. We held that this transaction could not qualify as a tax-free rollover of qualified plan assets because the character of the property transferred to the new IRA was different from the character of the property distributed to the taxpayer, and, therefore, under section 402(c)(1) the transaction did not qualify as a rollover. Id.

at 113. But, in this case, the rationale is similar. The failure here did not alter the ownership of the stock by the IRA and certainly did not transfer the ownership to petitioner. The worst that could be said is that there was an oversight from which we draw no adverse inference.

To reflect the foregoing, Decision will be entered under Rule 155 .