# PURSUANT TO INTERNAL REVENUE CODE SECTION 7463(b),THIS OPINION MAY NOT BE TREATED AS PRECEDENT FOR ANY OTHER CASE.T.C. Sum m ary Opi ni on 20 14 -2 2

UNITED STAT ES TAX COURT

SCOTT A. KAMIENESKI AND E RESIA KAMIENESKI, Pet it io ne rs v. COMM ISSI ONER OF INTERNAL REVENUE, Resp on de nt

Doc ke t No . 19 62 1- 12 S. Fil edMarc h 1 1, 2 01 4.

Sco ttA. Kam ie ne sk i an d Ere si a Kam ie ne sk i, p ro ses e. Mi ch ael R. Fio re, fo r res po nd en t.

SUMM ARY OPINION PANUTHOS, Chi ef Sp eci al Trial Ju dg e: Thi s ca se was h eardpu rs ua ntto th e p ro vi si on s o f se ct io n 7 46 3 o f th e In te rn al Rev enue Co de ineffe ctwhen th e pe ti ti on was fi le d. Purs ua ntto sec ti on 74 63 (b ), th e d eci si on to be en te redis no t
rev ie wab le by any

othe r co urt, an d thi s o pi ni on sh al l n otbe tre at edas p rece de nt2

fo r an y othe r cas e. Unl es s o th erwi se in di cat ed , subs eque ntsec ti on refe ren ces are to th e In te rn al Rev enue Co de ineffe ctforth e y ear i n i ss ue , andall Ru le refe ren ces are t o the Tax C ou rt Rul es of P ract ic e an d P ro cedur e. Res po nd en t d et erm in eda de fic ie nc y of $ 3,9 37 inSco ttA. Kam ie ne sk i (p et it io ne r) an d Ere si a Kam ie ne sk i’s 2 00 9 F ed eral in co m e ta x. The is su e fo r de ci si on is whet he r $1 1,2 50 pe ti ti on er re cei ve d i n 2 00 9 i s cap it al ga in or o rd in ary in co m e. Bac kg ro un d So m e o f th e fac ts ha ve be enst ip ul at ed , andwe in co rp or at e th e st ip ul at io n o f fact s b y th is refe ren ce. At the ti m e th e p et it io n was fil ed , pet it io ne rs res id edin Mas sa ch us et ts . Pet it io ne r ha s m an y

y ears of e xp eri en ce i n s al es an d s al es m an ag em en t. In 20 05 he be ga n wo rk in g fo r Sym co n Gl ob al Tech no lo gi es (SGT) as th e v ic e pr es id en t o f sa le s. Pet it io ne r worke d fo r SGT un ti l h e was lai d o ff o n Ap ril 30 , 20 08 . Peti ti on er was un em pl oyed fo r 41⁄2 m on th s dur in g wh ic h h e p ur su ed
em pl oym en t o pp ortu ni ti es with t ech no lo gy com pani es an d e ng ag edinbu si ne ss act iv it ie s u si ng hi s ex pe rie nc e in tec hn ol og y . In Se pt em be r 20 08 he be ga n worki ng forOracl e Co rp .3

Sh ortl y aft er l eav in g S GT’ s emplo ym en t, p et it io ne r m etwith S GT’ s ch ie f
ex ecu ti ve off

ic er t o e xp lo re a p os si bl e b us in es s arran ge m en t wi th SGT. SGT in di cat edth atitwas i n n eedof a ndpe ti ti on er o ffer edto de ve lo p an i m pr ov ed cl ie nten ga ge m en t m etho do lo gy (cli en t m etho do lo gy). Ove r th e n ex t fe w m on th s p et it io ne r de ve lo pe d c ert ai n b us in es s m od el an d pr act ic e in no va ti on s i n the form of acli en t m etho do lo gy. Thi s cl ie ntm etho do lo gy was de si gn edto ass is t s m al l t o m ed iu m -s iz edbu si ne ss es to im pl em en t ex cel le nc e by tak in g aco m

pr eh en si ve , strat eg ic ap pr oa chto th e li fe cycle o f a b us in es s o r pr oduc t. Thi s m etho do lo gy was cal le d LABS , forLearn , Anal yze, As se ss an d Adapt , Bui ldan d S cal e. Upo n c om pl et io n o f th e cl ie ntm etho do lo gy, pet it io ne r an d S GT ent eredin to anag reem en t wh ic h p ro vi de d, i n p art , forth e fo ll owi ng :

W HEREAS Kam ie ne sk i h as crea te d e nt erp ris e v al ue for SGT in th e fo rm

of Go odwil l an d c ert ai n B us in es s M od el an d B us in es s Prac ti ce In no va ti on s (f

orex am pl e, th e LABS cl ie nten ga ge m en t m etho do lo gy); an d W HEREAS Kam ie ne sk i an d S GT hav e d et erm in editis inth ei r res pe ct iv e b es t i nt eres ts to est ab li sh a si ng le do ll ar v al ue forth es e SGT ass et s p ro vi de d b y

Kam ie ne sk i. NOW , THEREFORE, for an d i n c on si de rat io n o f th e m utua l pr om is es an d a gr eem en ts co nt ai ne d h erei n a ndinco ns id erat io n o f th e pa ym en ts to Kam ie ne sk i as pro vi de d i n t hi s Ag reem en t, the su ffi ci en cy

of wh ic h i s h ereb y

ackno wled ge d, SGT an d Kam ie ne sk i he reb y ag ree t o the fol lo win g:4

1. Co ns id erat io n. (a) SGT ag rees to pa y

Kam ie ne sk i the su m

of $ 22 ,50 0 i n s ix equa l i ns ta ll m en ts of $ 3,7 50 to be pa idon or b efo re the las t d ay of Octo be r, Nov em

be r, Decem

be r (2 00 8) , Jan ua ry , Feb ru ary an d M arch (2 00 9)
. (b ) Kam ie ne sk i ag rees to acce ptth e co ns id erat io n d es cri be d i n th is Para gr ap h No . 1 as ful l, co m pl et e an d a de qu at e co ns id erat io n fo r Kam ie ne sk i’s p ro vi si on to SGT of the afo rem en ti on edGoo dwi ll an d Bu si ne ss Mo de l In no va ti on s. 2. Rel eas e an d In de m ni fic at io n. SGT andKam ie ne sk i re le as e, in de m ni fy an d fo rev er d is ch arg e th e o th er fro m

an y an d a ll cla im s p ert ai ni ng to th e afo rem en ti on ed Goo dwi ll an d B us in es s M od el Inn ov at io ns . Pet it io ne r dr aft edth e o ne -p ag e ag reem en t. Pet it io ne r di d n otap pl y for , no r ob ta in , a co pyrig htor p at en t fo r th e cl ie ntm etho do lo gy. Pet it io ne r rec ei ve d $ 11 ,25 0 i n 20 09 pu rs ua ntto th e ag reem en t wi th SGT. Pet it io ne rs ti m el y

fil edth ei r 20 09 Fed eral in co m e ta x re tu rnbu t d idno t rep ort re cei ptof t he $1 1,2 50 inin st al lm en t p aym en ts . Res po nd en t s el ect ed pe ti ti on ers ’ 20 09 return fo r ex am in at io n. Aft er re cei ptof t he no ti ce o f
ex am in at io n, p et it io ne rs subm it te d a n a m en de d re tu rnrep orti ng $1 1,2 50 on Sch edul e C, Pro fitor Lo ss Fro m Bu si ne ss , as g ro ss rece ip ts an d t he n c la im edco st of go od s s ol d o f $1 1,2 50 . Res po nd en t d idno t ac cep t p et it io ne rs ’ am en de d re tu rn . In st ead , res po nd en t i ss ue d p et it io ne rs a no ti ce o f de fic ie nc y de te rm in in g t ha t5

pe ti ti on ers fai le d t o re po rt r ecei ptof $ 11 ,25 0, ch arac te riz in g i t as “ no ne m pl oyee co m pe ns at io n” tax ab le as o rd in ary in co m e. Pet it io ne rs do no t co nt es t re cei ptof th e $ 11 ,25 0 b utass ertth atitwas c ap it al ga in an d n otord in ary in co m e. Dis cu ss io n The Co m m is si on er’s d et erm in at io n s etforth ina no ti ce o f de fic ie nc y is pr es um edco rrec t, an d atax pa y er g en eral ly bears th e b ur de n o f pr ov in g o th erwi se . Ru le 14 2( a); W el chv. Hel ve rin g, 2 90 U.S. 11 1, 1 15 (19 33 ). Pur su an t t o s ect io n 74 91 (a), the bu rd enof p ro of m ay sh iftto th e Co m

m is si on er i f th e ta xp ay er pr oduc es cred ib le ev id en ce wi thres pe ctto an y rel ev an t fa ctua l i ss ue an d m eet s ot he r requi rem en ts . Peti ti on ers di d n otall eg e th atsec ti on 74 91 (a) app li es . See
se c. 74 91 (a)( 2) (A) an d (B ). Ther efo re, p et it io ne rs be ar the bu rd enof p ro of . See Ru le 14 2( a). Sect io n 6 1 p ro vi de s, i n p art , th atgro ss in co m e m ean s al l i nc om e fro m wha te ve r so ur ce d eri ve d i nc lu di ng (bu t n otli m it edto ) co m pe ns at io n fo r se rv ic es an d g ai ns de riv edfro m

de al in gs inpro pe rty androyalt ie s. Sec ti on 64 pro vi de s, i n pa rt, tha t the term

“ or di nary

in co m e” i nc lu de s an y

ga in fro m

th e sa le or e xc ha ng e of pro pe rty tha t i s n ota cap it al ass et . Cap it al ga in wil l re su ltfro m ga in on th e sa le
orex ch an ge of acap it al ass et . See s ec. 1 22 2.6

Fo r a tran sa ct io n t o re cei ve cap it al ga in s treat m en t, the pro pe rty whic h i s tra ns ferr edm

us t b e so ldor e xc ha ng ed . Nahey v. Co m m is si on er, 1 11 T.C. 25 6, 26 2 (1 99 8) , aff’d, 1 96 F.3d86 6 (7 th Cir . 19 99 ). It i s fr eque nt ly neces sa ry to de te rm in e whe th er a v ari ety of c on di ti on s i nc lu de d i n a n a gr eem en t b etweenth e tra ns fero r an d the tra ns fere e tr an sf orm s a p ur

po rte d s al e in to a li cen se , th us requi rin g the ga in s fr om

th e tr an sa ct io n t o b e ta xe d a s o rd in ary in co m e. Tom erl in Trus t v . Comm is si on er, 8 7 T.C. 8 76 , 88 3 (1 98 6) . Whe n an a gr eem en t i s in te rp ret edas r es erv in g s ig ni fic an t p owe rs , rig ht s, o r co nt in ui ng in te res ts to th e tra ns fero r, th enitha s b eenhe ldth atsu chres erv at io ns pre cl ud e a fi nd in g o f a s al e. Id
. Inord er fo r th e tr an sf er o f th e cl ie ntm etho do lo gy to b e d eem eda sa le for ta x p ur po se s, p et it io ne r m

us t es tabl is h t ha t h e su rren de redall subs tant ia l ri gh ts of
va lu e in th e cl ie ntm etho do lo gy; ot he rwis e, th e tr an sf er i s d eem edto be a li cen se . Glen O’ Bri enMo vabl e Parti ti on Co . v. Co m m is si on er, 7 0 T.C. 4 92 , 50 0 (1 97 8)
. Inord er t o a sc ert ai n wh ethe r pe ti ti on er an d S GT in te nd edth atth ere b e a tra ns fer t o S GT of al l s ub st an ti al rig ht s o f va lu e in th e cl ie ntm etho do lo gy, w e lo okfir stto th e te rm s o f th e ag reem en t. We are m in df ul th atth e te rm in ol og y

us ed in th e ag reem en t m ay

be of s ig ni fic an ce; ho wev er, the lab el or n am e th e ag reem en t be ars is no t d et erm in at iv e, no r is th e fo rm th ereo f co nc lu si ve . Tom erl in Trus t v .7

Co m m is si on er, 8 7 T.C. at88 1- 88 2; Tay lo r-Winf ie ldCo rp . v. Co m

m is si on er, 5 7 T.C. 20 5 (1 97 1) , aff’d, 4 67 F.2d48 3 (6 th Cir . 19 72 ); C le ve landGrap hi te Bro nz e Co . v. Co m

m is si on er, 1 0 T.C. 9 74 , 98 8 (1 94 8) , aff’d, 1 77 F.2d20 0 (6 th Cir
. 19 49 ). The ag reem en t i ts el f do es no t co nt ai n t erm s tha t wo ul d s ug ge stex cl us iv ity in th e tr an sf

er t o S GT up on ex ecu ti on of t he ag reem en t. Pet it io ne r as se rts , ho wev er, tha t wh enhe en te redin to th e ag reem en t wi th SGT he i nt en de d t o g iv e up all rig ht s i n the cli en t m etho do lo gy. Pet it io ne r ex pl ai ns th athe an d S GT agre ed th atSGT was p ay in g fo r m or e th anjus t the cli en t m etho do lo gy; SGT was p ay in g fo r “ go od wil l” . Peti ti on er as se rts th atth is pro vi si on of “ go odwil l” was h is ag reem en t t o g iv e up a ll rig ht s i n t he cli en t m etho do lo gy andth atall rig ht s i n the cl ie ntm etho do lo gy the reaf te r be lo ng edto SGT. 1 Upo n e xa min in g the term s o f th e ag reem en t, we co nc lu de th e p art ie s d idno t in te ndth atpe ti ti on er tran sf er t o S GT all subs tant ia l ri gh ts of v al ue inth e cl ie nt
m etho do lo gy. W e b as e o urco nc lu si on onth e fac t tha t the ag reem en t co nt ai ns no te rm s p rev en ti ng pe ti ti on er fro m di sc lo si ng th e cl ie ntm etho do lo gy to o th er Goo dwi ll is de fin edas the fav oror p res ti ge th ata bu si ne ss ha s ac qu ire d 1 be y on d the m ere v al ue of wh atitsel ls or t he va lu e o f pr ojec te d e arn in gs in crea se s of a bu si ne ss esp eci al ly as pa rt o f it s p ur ch as e p ric e. Merr ia m -Webs te r’s Co ll eg ia te Dict io nary

50 2 (1 0t h e d. 1 99 7) . Peti ti on er d oe s n otcla im th athe ha d de ve lo pe d p ers on al or c omm erci al go od wil l as th atterm is de fin ed
.8

pe rs on s o r en ti ti es . Alth ou ghpe ti ti on er cl ai m s tha t h e d ev el op edth e cl ie nt
m etho do lo gy andga ve up all rig ht s t o t ha t m etho do lo gy to S GT, the co nt racthe
en te redin to with S GT do es no t co nf er t o S GT exc lu si vi ty in the cli en t
m etho do lo gy. Altho ug h p et it io ne r as se rts th at“ go od wil l” co nf erre d e xc lu si ve rig ht s, we d o n otacce ptth atpe ti ti on er, a s eas on edpro fes si on al , actua ll y be li ev ed th atth e p ro vi si on of “ go od wil l” gra nt edSGT exc lu si vi ty in the cli en t
m etho do lo gy. Mo stim

po rta nt ly, if S GT hadso ug htex cl us iv e ri gh ts inth e cl ie nt
m etho do lo gy, it i s u nl ik el y th atitwou ldha ve us edam bi gu ou s t erm s t o o bt ai n th os e ri gh ts . Giv enth e n atur e an d t erm s o f th e ag reem en t, we co nc lu de th atpe ti ti on er di d n otgra ntSGT exc lu si vi ty in the cli en t m etho do lo gy. There fo re, p et it io ne r’s 2 pr ov is io n o f th e cl ie ntm etho do lo gy to S GT di d n otam ou ntto a sa le an d t he
rem un erat io n p et it io ne r rec ei ve d fo r th e p ro vi si on of t he cli en t m etho do lo gy to SGT is co ns id eredord in ary in co m e.

The term s o f th e ag reem en t s eem to in di cat e th atpe ti ti on er was co nt ract ed 2 by SGT to d ev el op a m etho do lo gy for SGT, th ereb y tak in g o n am or e “ fees for se rv ic es ” li ke ne ss . If pe ti ti on er cr eat edth e cl ie ntm etho do lo gy for SGT an d n ev er own edit , he c ou ldno t h av e so lditto SGT. See ge ne ral ly Regen st ei n v . Co m m is si on er, 3 5 T.C. 1 83 (19 60 ).9

W e h av e co ns id eredall of t he pa rti es ’ arg um en ts , and , to th e ex te ntno t ad dr es se d h erei n, we co nc lu de th atth ey are m oo t, i rrel ev an t, o r witho utm eri t. To re fle ctth e fo reg oi ng , Deci si on wil l b e en te red fo r res po nd en t.