Moiseshyn: Unreported ESPP Stock Sale Was Taxed Because the W-2 Was Not Shown to Include It

A taxpayer who leaves an employee stock purchase plan (ESPP) sale off the return on the theory that the W-2 already covered it needs evidence that the employer actually put that income in the W-2. In Moiseshyn v. Commissioner, T.C. Memo. 2026-114 (Nov. 4, 2026), a California couple could not show that, so the Tax Court held them taxable on $32,146.74 of stock gain, plus $1,345 of dividends and $146 of interest, that their 2021 return omitted.

Judge Fung issued a memorandum opinion after a trial in Los Angeles. The couple represented themselves. The court ordered the tax computed under Rule 155. Absent a stipulation otherwise, an appeal would go to the Ninth Circuit.

The sale, the W-2 and the return

Anthony Moiseshyn worked as a Medtronic sales representative from 1999 until he retired in 2025. Through the company’s ESPP, administered by Fidelity, employees could put 2% to 10% of eligible pay toward Medtronic stock bought quarterly at 85% of fair market value. The plan summary the court admitted said that, depending on the holding period, some or all of the purchase discount could be ordinary income reportable on the W-2; on a “disqualifying disposition,” ordinary income generally equaled the stock’s value on the purchase date minus the price paid; and further gain was generally capital gain.

Between March 2015 and March 2020, Mr. Moiseshyn acquired Medtronic shares through the plan with an aggregate cost basis of $57,498.37. On June 2, 2021, he sold them for $99,805.16, a $42,306.79 gain. National Financial Services reported the sale on Forms 1099-B. His 2021 W-2 from Medtronic showed $272,568 in Box 1; his Medtronic pay was a bimonthly salary plus quarterly commissions that fluctuated.

According to the couple, their return preparer believed that all Medtronic-related income, including the stock sale, was already inside the $272,568. On that understanding the joint return reported no stock sale and attached no Schedule D.

What the IRS determined and what changed before trial

Relying on the information returns, the IRS determined $43,800 of unreported income: $42,309 of securities gain, $1,345 of dividends and $146 of interest. The January 22, 2024, notice of deficiency asserted $7,295 of tax and a $2,129 accuracy-related penalty.

Two concessions narrowed the case. The IRS dropped the penalty in its February 2026 pretrial memorandum. In the March 2026 stipulation of facts, it agreed to raise the stock’s basis from $57,498.37 to $67,658.42, which left $32,146.74 of the sale gain in dispute.

The broker forms shifted the burden to the couple

For unreported income, the Ninth Circuit first requires substantive evidence connecting the taxpayer to the income-producing activity or showing that the income was received. The court found that link in the Forms 1099-B, 1099-DIV and 1099-INT.

Section 6201(d) bars the IRS from resting only on a third-party information return when the taxpayer raises a reasonable dispute about its accuracy. The couple never questioned the forms’ accuracy; they argued that the income had been reported elsewhere. With the minimal foundation established, they had to prove by a preponderance of the evidence that the determination was arbitrary or erroneous. The court found Mr. Moiseshyn’s testimony about his understanding credible, but not enough.

Why the W-2 argument failed

The court described the section 423 framework: Stock from a qualified ESPP can receive favorable treatment on part of the gain if the holding periods in section 423(a)(1) are met before the sale. Because neither party disputed whether Medtronic’s plan qualified, the court assumed that it did.

Mr. Moiseshyn’s only contention on the stock was that the gain was already in Box 1 of his W-2. He testified that Medtronic gave him no guidance on reporting a sale and sent stock questions to Fidelity, leaving him “kind of caught in the middle” between the two companies. He also testified that nothing Medtronic gave him said the ESPP proceeds were in Box 1.

His main evidence was Fidelity’s “Employee Stock Purchase Plan (Qualified)” tax material, which said “ESPP income will usually be included with . . . other compensation in [B]ox 1.” The court emphasized “usually.” The same material warned that employees may have to report ordinary income on a sale and remain responsible for it even when it does not appear on a W-2. That document therefore did not show how this sale was reported, and its disclaimers signaled that reporting the stock sale was the couple’s responsibility.

The missing evidence decided the issue. Mr. Moiseshyn offered no 2021 Medtronic pay statement, no Medtronic document describing how 2021 ESPP income was reported and no Medtronic contact who could confirm his account; he said he had asked for the pay statement but could not get it. His 2024 plan summary and plan document described the plan and how to buy shares, not how his 2021 sale was reported, and concerned a different year. The court concluded: “We are not convinced that the gain from the disposition of Mr. Moiseshyn’s Medtronic ESPP stock was included in the wages reported on his 2021 Form W–2.” Citing Hradesky and Tokarski, the court applied the taxpayer’s burden to substantiate factual claims and declined to accept self-serving testimony without support.

Dividends, interest and the result

The couple stipulated the $1,345 of dividends from Charles Schwab and National Financial Services and $146.14 of interest on a federal tax refund, offered no argument against either, and the court sustained both.

The court held the couple liable for tax on $32,146.74 of securities income, $1,345 of dividends and $146 of interest. “Decision will be entered under Rule 155.” The parties now compute the tax from the court’s findings and the concessions, including the higher basis and the dropped penalty.

What the decision means

The case turned on proof: the couple had no employer record showing the gain was in the W-2.

Our reading for anyone in a similar position: The documents that might have mattered were Medtronic’s own 2021 records, such as a year-end pay statement or a written statement showing ESPP income in Box 1, not a broker’s general description of what “usually” happens. Even where the employer does include ordinary income, the broker still reports the sale itself. The stipulated basis increase, which cut the disputed gain by $10,160.05, is also a reminder to check basis, not only the W-2. Our guide to reporting an ESPP stock sale when the W-2 and Form 1099-B disagree covers Form 3922 and the Form 8949 basis adjustment.