I most respectfully suggest this is not the testimony you want to hear, when fighting an unreported income item of $25K, given by the surviving sibling seller of taxpayer’s erstwhile employer when the business is sold.

Juan Pesante, Jr., and Maria A. Moreno-Pesante, Docket No. 9107-19S, filed 5/6/21, are the recipients of the bad news from Judge Elizabeth A. (“Tex”) Copeland.

Juan was a good and faithful employee. He built up the worth of his employer, so as to make the sale of the business possible at a good price, but the buyer, as is the way of the world, gave Juan a plank-walk.  The surviving sibling seller gave Juan the $25K, which Juan claims they told him was a gift. They also gave Juan a 1099-MISC, at no extra charge, except by the IRS.

Of course the 1099-MISC they gave Juan preserved their tax deduction (compensation for services), but scuttled Juan’s nonrecognition. Juan was a credible witness on the trial, and the managing member contradicted a written (but unsworn) statement he’d made before.

The managing member of the surviving sibling seller testified ” (1) that after the sale of [Juan’s employer], the members of [surviving sibling seller] ‘wanted to do something for [Mr. Pesante],’ (2) that not all members were originally in agreement on making the payment, (3) that the $25,000 ultimate payment was a ‘gift, reward, or whatever you want to call it,’ and (4) that but for Mr. Pesante’s work with [Juan’s employer] he would not have received the payment from [surviving sibling seller].” Transcript, at p. 7.

“Problematic here are three objective facts: (1) there was a disagreement between the members of the payor entity as to whether or not to make the payment to Mr. Pesante; (2) the payor issued a Form 1099-MISC treating the payment as taxable; and (3) the payment was made close in time to the sale of [Juan’s employer], an entity that had employed Mr. Pesante and an entity to which Mr. Pesante had added value.” Transcript, at p. 10.

Juan was self-represented, and contributed an “own goal” on the trial. When asked about the value he added to his employer, that boosted the sales price, “Mr. Pesante emphasized this fact at trial.” Transcript, at p. 10.

“Unfortunately, here, Mr. Pesante has not presented sufficient evidence to overcome the payor’s treatment of the gift/reward as taxable or to overcome whether the payment was made to compensate him for his past services in building up the value of the Company that was sold.” Transcript, at pp. 10-11.

So the $25K is taxable, ” whether it was a gift, reward, or the like.” Transcript, at p. 11.