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Petitioner and one of petitioners’ daughters contacted the
Arkansas State Medical Board (medical board) in November 1999 to
report the affair between Dr. Hestir and Mrs. Peebles. In an
undated letter, Dr. Hestir self-reported his misconduct to the
medical board and expressed deep regret for his actions.
The medical board held a hearing on February 3, 2000.
Petitioners testified at the hearing. When questioned why Dr.
Hestir gave him $25,000, petitioner said: “I think it was to try
to clear his conscience.”
On February 8, 2000, Dr. Hestir’s accountant prepared a Form
1099-MISC, Miscellaneous Income, reporting that he had paid
$25,000 to petitioner. Petitioners did not report the $25,000 on
their timely filed Federal income tax return for 1999.
Discussion
A. The Parties’ Contentions and Legal Background
Petitioners contend that Dr. Hestir intended the $25,000
payment to be a gift.2 We disagree.
Gross income includes all income from whatever source
derived. Sec. 61. However, gross income does not include gifts.
Sec. 102(a). In Commissioner v. Duberstein, 363 U.S. 278, 285-
286 (1960), the Supreme Court said:
2 We need not decide which party bears the burden of proof
because we decide this case on the basis of the preponderance of
evidence without regard to the burden of proof.
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