Fernando Ponce and Natalie Ponce, T. C. Sum. Op. 2023-23, filed 7/18/23, show the burden of leadership as well as its reward. Fernando was a lead plaintiff in a wages-and-hours class action. These are a specialty du jour in service industries, where workers work off-the-clock to dodge Fair Labor Standards Act and State law analogs. Fernando got $15K for his trouble, and a 1099-MISC nonemployee compensation at no extra charge. The $15K never made it onto his and Nat’s 1040 MFJ.

Problem is that, though Fernando “traveled, took time off work, and regularly communicated with law firms in pursuing the litigation,” T. C. Sum. Op. 2023-23, at p. 4, he has no substantiation of any expenses to offset the $15K pickup.

STJ Peter (“HB”) Panuthos: “While we recognize that petitioner may have expended time and money to pursue his claim, from the record before us we are unable to conclude that the service award was a reimbursement for expenses incurred in pursuing the lawsuit or that it is excludable from petitioners’ income. Even if we were to find that the service award represented reimbursement for expenses, the record is vague and insufficient as to the nature of expenditures petitioner made in support of the lawsuit.” T. C. Sum. Op. 2023-23, at p. 4.

Fernando’s claim that IRS treated another lead differently founders.

“While we may give the Commissioner’s determinations involving another taxpayer some consideration, we are not bound by them. Even if we were to consider the documents concerning another taxpayer, the record does not support petitioners’ assertion that the service award is nontaxable. The documents concerning another taxpayer simply demonstrate the Commissioner had proposed changes to his tax return…and that a discrepancy had been resolved.” T. C. Sum. Op. 2023-23, at p. 4.

Takeaway- Leaders, keep good records.