Moiseshyn v. Commissioner, T.C. Memo. 2026-114, November 4, 2026

Executive Summary

In Moiseshyn v. Commissioner, the United States Tax Court addressed a bit of confusion the taxpayers encountered when handling employee stock plan dispositions. The taxpayers believed they could defeat an IRS deficiency determination for omitted securities gains by asserting that the capital income was already embedded within Box 1 compensation on Form W-2, or at least that their employer’s guidance was so confusing their error should be excused. Writing for the Court, Judge Fung sustained the Internal Revenue Service’s deficiency determination regarding unreported securities gain from an Employee Stock Purchase Plan (ESPP), as well as omitted dividend and Treasury interest income.

The decision underscores the rigorous substantiation requirements imposed on taxpayers under Internal Revenue Code (I.R.C.) § 61 and Tax Court Rule 142(a). For CPAs and Enrolled Agents (EAs), Moiseshyn serves as a critical reminder that third-party informational disclaimers—such as brokerage guides stating that ESPP income is “usually” included in Box 1—do not constitute probative evidence of actual wage inclusion, nor do they shift the burden of proof back to the Commissioner.

Factual and Procedural Background

The taxpayers, Anthony J. Moiseshyn and Mai Moiseshyn, were pro se petitioners residing in California during the tax year at issue. From 1999 through his retirement in 2025, Mr. Moiseshyn served as a principal sales representative for Medtronic PLC (Medtronic). As a fringe benefit of his employment, Mr. Moiseshyn participated in the Medtronic Employee Stock Purchase Plan, an employee plan administered through Fidelity Brokerage Services LLC (Fidelity). Under the terms of the ESPP, eligible full-time employees could elect to contribute between 2% and 10% of eligible compensation to acquire Medtronic stock at an 85% discount relative to fair market value on quarterly purchase dates.

Between March 31, 2015, and March 31, 2020, Mr. Moiseshyn acquired numerous shares of Medtronic stock through Fidelity, establishing an aggregate cost basis of $57,498.37. On June 2, 2021, Mr. Moiseshyn liquidated these shares for total proceeds of $99,805.16, generating an aggregate gain of $42,306.79. National Financial Services, LLC, the brokerage clearing agent, reported the gross proceeds and basis details to both the taxpayer and the IRS on Forms 1099-B (Proceeds From Broker and Barter Exchange Transactions).

During 2021, the petitioners also received $1,345 in dividend income from Charles Schwab & Co., Inc. and National Financial Services, LLC (reported on Forms 1099-DIV), as well as $146 in taxable interest income credited by the U.S. Department of the Treasury on a federal tax refund (reported on Form 1099-INT). Medtronic issued Mr. Moiseshyn a Form W-2 for 2021 reporting Box 1 compensation of $272,568, consisting of salary and quarterly sales commissions.

When preparing their 2021 joint federal income tax return, petitioners retained a professional tax preparer. According to petitioners, “their tax preparer believed that all income attributable to Medtronic, including compensation and income related to the stock sale, had already been reflected in the $272,568 figure reported on Mr. Moiseshyn’s Form W–2.” Consequently, petitioners omitted the stock disposition from their return, failed to attach Schedule D (Capital Gains and Losses), and omitted the dividend and interest income.

Following an automated matching examination, the IRS issued a Notice of Deficiency on January 22, 2024, determining $43,800 in total unreported income ($42,309 in stock sale gains, $1,345 in dividends, and $146 in interest). The IRS determined a tax deficiency of $7,295 and an accuracy-related penalty under I.R.C. § 6662(a) of $2,129.

Prior to trial, the IRS conceded the I.R.C. § 6662(a) accuracy-related penalty in its Pretrial Memorandum filed February 20, 2026. Furthermore, in a Stipulation of Facts filed March 4, 2026, the IRS agreed to increase taxpayers’ cost basis in the Medtronic ESPP stock from $57,498.37 to $67,658.42. This basis adjustment reduced the remaining disputed gain from the ESPP stock disposition from $42,306.79 to $32,146.74.

Taxpayers’ Position and Request for Relief

Petitioners filed a timely petition in the United States Tax Court seeking a redetermination of the income tax deficiency. Their primary substantive argument centered on the capital gain realized from the ESPP stock liquidation. Mr. Moiseshyn contended that “petitioners are not liable for tax on the gain from the disposition of the Medtronic ESPP stock solely because that income was already included in the $272,568 in Box 1 of his Form W–2 from Medtronic.”

In support of his position, Mr. Moiseshyn testified that Medtronic provided no specific guidance on reporting the stock disposition, referring him instead to Fidelity. He testified that he felt “‘kind of caught in the middle’ between Medtronic and Fidelity, each company pointing him to the other for the information he sought.”

To substantiate his position that Box 1 wages encompassed the stock gains, Mr. Moiseshyn introduced Exhibit 8-P, a Fidelity tax guidance document titled “Employee Stock Purchase Plan (Qualified).” Petitioners emphasized a clause in Exhibit 8-P stating that “ESPP income will usually be included with . . . other compensation in [B]ox 1.” Additionally, Mr. Moiseshyn requested the admission of Exhibit 9-P (“2024 Employee Stock Purchase Plan Summary”) and Exhibit 10-P (“2024 Employee Stock Purchase Plan”), arguing that the general operation of the Medtronic ESPP confirmed his reporting theory.

Regarding the omitted dividend and interest income, petitioners stipulated to the receipt of $1,345 in taxable dividends and $146.14 in IRS interest, offering no substantive legal arguments to dispute their taxability.

Statutory Framework and Judicial Precedent

The Court’s legal analysis is anchored in the broad scope of gross income under I.R.C. § 61(a), which encompasses “all income from whatever source derived,” including gains derived from dealings in property (§ 61(a)(3)), interest (§ 61(a)(4); Treas. Reg. § 1.61-7), and dividends (§ 61(a)(7)).

Rules Governing Employee Stock Purchase Plans

I.R.C. § 423, operating in conjunction with I.R.C. § 421, governs statutory Employee Stock Purchase Plans. Under I.R.C. § 423(c), when an option exercise price is between 85% and 100% of the stock’s fair market value, specific rules dictate the portion of gain recognized as ordinary compensation versus capital gain upon disposition. To secure favorable capital gains treatment on the appreciation, the participant must satisfy the statutory holding periods mandated by I.R.C. § 423(a)(1)—specifically, holding the stock for at least two years after the option grant date and one year after share transfer.

If shares are sold prior to satisfying these holding periods, the participant executes a “disqualifying disposition.” In a disqualifying disposition, “ordinary income generally equaled the difference between the stock’s fair market value on the purchase date and the participant’s purchase price,” with any remaining appreciation taxed as capital gain. Although the parties did not fully litigate whether the Medtronic ESPP complied with all formal qualification requirements of I.R.C. § 423(b), the Court noted that under Leahy v. Commissioner, 87 T.C. 56, 73–74 (1986), arguments not advanced are deemed abandoned. Consequently, Judge Fung evaluated the case under the statutory framework of I.R.C. §§ 421 and 423.

Burden of Proof and Burden Shifting in Unreported Income Cases

Under Tax Court Rule 142(a) and the seminal decision in Welch v. Helvering, 290 U.S. 111, 115 (1333), determinations set forth in a Notice of Deficiency carry a presumption of correctness, placing the ultimate burden of proof on the taxpayer.

However, in cases involving unreported income appealable to the U.S. Court of Appeals for the Ninth Circuit (pursuant to I.R.C. § 7482(b)), specific threshold requirements apply. Under Ninth Circuit precedent, before the presumption of correctness attaches, the Commissioner must establish a minimal evidentiary foundation linking the taxpayer to the income-producing activity (Weimerskirch v. Commissioner, 596 F.2d 358, 361–62 (9th Cir. 1979)) or demonstrating actual receipt of funds (Edwards v. Commissioner, 680 F.2d 1268, 1270–71 (9th Cir. 1982)).

Furthermore, I.R.C. § 6201(d) provides that if a taxpayer raises a reasonable dispute regarding the accuracy of third-party information reporting (such as Forms 1099), the Commissioner cannot rely solely on information returns. However, if the taxpayer fails to dispute the accuracy of the third-party reports, the IRS satisfies its threshold burden. Once this threshold is met, the burden shifts back to the taxpayer to establish by a preponderance of the evidence that the deficiency determination is arbitrary or erroneous (Delaney v. Commissioner, 743 F.2d 670, 671 (9th Cir. 1984)).

Application of Law to the Evidence

Judge Fung systematically evaluated the evidence under established burden-of-proof standards, finding that the IRS satisfied its initial evidentiary threshold while petitioners failed to meet their burden of proof.

Threshold Evidentiary Foundation

The Court found that the IRS established the required evidentiary predicate under Weimerskirch by producing independent third-party information returns:

Forms 1099-B from National Financial Services, LLC detailing security sales and proceeds;
Forms 1099-DIV from Charles Schwab & Co., Inc. and National Financial Services, LLC showing dividend distributions; and
Form 1099-INT from the U.S. Treasury establishing interest payments.

Because petitioners “did not challenge or address the accuracy of the Forms 1099–B, 1099–DIV, or 1099–INT,” I.R.C. § 6201(d) was not triggered to invalidate the IRS’s threshold showing. Thus, the presumption of correctness attached, shifting the burden to petitioners.

Rejection of Uncorroborated Claims and Third-Party Disclaimers

In evaluating whether petitioners proved that the $32,146.74 in net capital gains was already included in Box 1 of Form W-2, the Court analyzed the documentation submitted into evidence.

First, the Court held that petitioners failed to present primary payroll substantiation. Mr. Moiseshyn produced no 2021 pay stubs, year-end payroll statements, employer tax allocation documents, or testimony from Medtronic payroll personnel corroborating that ESPP gain was included in Box 1. Under Hradesky v. Commissioner, 65 T.C. 87, 89–90 (1975), aff’d per curiam, 540 F.2d 821 (5th Cir. 1976), the taxpayer bears the strict burden of substantiating factual assertions challenging a deficiency.

Second, the Court rejected petitioners’ reliance on Fidelity’s Exhibit 8-P. While the document noted that ESPP income is “usually” included in Box 1, Judge Fung highlighted that the same document contained explicit disclaimers:

“Exhibit 8-P states that ‘ESPP income will usually be included with . . . other compensation in [B]ox 1.’ But Exhibit 8-P also explains that employees may be required to report ordinary income upon disposition of ESPP shares and remain responsible for reporting such income even if it is not reflected on a Form W–2.”

The Court concluded that “given the disclaimers in Exhibit 8-P, Mr. Moiseshyn should have understood that Medtronic was not providing any certainty regarding the reporting of income on his Form W–2, and more importantly, that it was petitioners’ responsibility to report and pay any tax related to a stock sale.”

Third, the Court addressed petitioners’ reliance on general employee communication guides (Exhibits 9-P and 10-P). The Court noted that these exhibits related to tax year 2024 rather than the 2021 tax year in issue and merely explained general purchase mechanics without clarifying actual W-2 reporting. Citing Tokarski v. Commissioner, 87 T.C. 74, 77 (1986), Judge Fung emphasized that the Tax Court is not bound to accept self-serving testimony unsupported by corroborating objective evidence.

Decision on Omitted Dividends and Interest

Regarding the $1,345 in dividend income and $146 in Treasury interest income, the Court noted that petitioners stipulated to receiving these amounts ($146.14 stipulated for interest) and offered no legal or factual defense. Consequently, the Court sustained the IRS’s determinations in full.

Conclusions and Practical Guidance for Tax Practitioners

The Tax Court held that petitioners failed to carry their burden of proving that the Commissioner’s deficiency determination was incorrect. Petitioners were held liable for income tax on unreported securities gains of $32,146.74, dividend income of $1,345, and interest income of $146. Because the IRS agreed to a cost basis increase from $57,498.37 to $67,658.42, the Court ordered that decision be entered under Tax Court Rule 155 to recalculate the exact deficiency figure.

For CPAs, Enrolled Agents, and tax return preparers, Moiseshyn v. Commissioner provides several actionable lessons:

Reconciliation of Form W-2 vs. Form 1099-B: Tax preparers must never assume that employer W-2 Box 1 wages include gains realized from ESPP, RSU, or stock option dispositions reported on Form 1099-B. A thorough reconciliation requires reviewing the taxpayer’s final year-end pay stub or W-2 detail statement (such as Box 14 breakdown or employer stock disposition statement).
Third-Party Brokerage Disclaimers: Informational booklets issued by plan administrators (e.g., Fidelity, Charles Schwab) contain boilerplate disclaimers and non-binding generalizations (“usually included”). Practitioners cannot rely on administrative guides as legal or factual proof of wage inclusion.
Evidentiary Standard in Tax Court: Taxpayers challenging third-party information returns must present concrete contemporaneous records (pay stubs, employer W-2 reconciliation statements, or employer payroll testimony). Verbal testimony or preparer assumptions will be dismissed as uncorroborated self-serving evidence under Tokarski.
Proactive Basis Adjustments: The case demonstrates the importance of verifying stock basis reported on Form 1099-B. Through pretrial stipulations, petitioners successfully increased their recognized basis by $10,160.05, demonstrating that basis verification remains a crucial avenue for reducing exposure even when income taxability is sustained.

Prepared with assistance from Gemini Notebook.