Tax Court in Brief | August 24 – 28, 2026

Freeman Law’s “The Tax Court in Brief” covers every substantive Tax Court opinion, providing a weekly brief of its decisions in clear, concise prose. The Court issued three opinions the week of August 24, 2026, and all three came down to the same question: what does the record actually show?

One taxpayer built his record out of self-prepared spreadsheets, a retainer agreement with his own wife, and a billing statement his lawyer later corrected by $10,000. He is an IRS revenue agent. Another couple kept records that a judge called informal and a bit worse than that, and won the hobby-loss fight anyway. A third petitioner asked the Court to go get 800 boxes of grand jury material because the record the agency built didn’t say what he needed it to say.

Two of the three lost. The one who won kept receipts nobody would call pretty.

Can the IRS Hit One of Its Own Auditors With the Civil Fraud Penalty?

It can, and this week it did — for four straight years. Janangelo v. Commissioner, T.C. Summary Opinion 2026-8 (Aug. 27, 2026) (Siegel, S.T.J.), is the opinion to read, though section 7463(b) means you can’t cite it. Small tax case opinions aren’t precedent. This one is still the best teaching document on the badges of fraud to come out of the Court in months.

Peter Janangelo has been an IRS revenue agent for nearly twenty years. He is also a New York-licensed attorney, a CPA in two states, and admitted to practice before the Tax Court. He examines returns for a living. The Court sustained deficiencies of $34,344 across 2018 through 2021 and a section 6663 civil fraud penalty of $25,759 — 75% of the underpayment, every year.

The mechanics start with the Tax Cuts and Jobs Act. Section 67(g) suspended miscellaneous itemized deductions for years beginning after 2017, and Mr. Janangelo had been deducting the same basket of items for years: Drake Tax software, IRS Tax Forum registration, NATP dues, Nevada accountancy board dues, union dues, periodicals, postage. After the suspension took effect, the same basket kept showing up on his returns, just relabeled.

For 2018 the vehicle was a Schedule C business called Peter J. Janangelo, Jr., SSA Disability Claim Services. Its sole articulated purpose was for Mr. Janangelo to represent his own wife in a Social Security disability application she never filed. The activity consisted of 2.5 hours spent reading the SSA website in the last days of December and writing her a memo saying an application probably wasn’t worth the trouble. He reported $812 in gross receipts — a check from his wife that fit neatly inside her ordinary share of the household bills — and claimed $23,354 in expenses against it.

The Court found the enterprise a sham, not a trade or business, and not an activity engaged in for profit under section 183. It also found the reporting false. Mr. Janangelo told the IRS his representation would not concern “any ‘tax matters,'” then deducted professional tax preparation software as an SSA DCS expense. He claimed 25% of his life and disability insurance premiums, reasoning that if he died his wife would need to hire other counsel. He allocated 33% of his union dues on the theory that the union would have helped him grieve a denial of permission he may or may not have received.

The legal fees are what turn a bad case into a fraud case. Mr. Janangelo reported $16,844 paid to attorney James Kemp, claiming $14,500 of it related to his wife’s disability matter, and produced a March 2019 billing statement to prove it. After an IRS summons, Mr. Kemp pulled his own records and issued a corrected statement: the real number was $4,500. He had prepared the original from figures Mr. Janangelo gave him. He testified that he does not handle SSA disability claims, that he did no work for Mrs. Janangelo, and that he had never heard of SSA DCS.

For 2019 through 2021 the label changed to an age discrimination lawsuit. Section 62(a)(20) allows an above-the-line deduction for attorney’s fees and costs in a discrimination claim, but only up to the amount includible in gross income from a judgment or settlement. Mr. Janangelo lost his EEOC case on summary judgment. No award, no settlement, no promotion — and so no ceiling to deduct under. He argued the limitation shouldn’t apply to him because an IRS employee had lied in a deposition. But an unsupported allegation about a deposition does not change what section 62(a)(20) allows.

Along with the legal fees were car washes, kenneling for the family dogs, toiletries, tips for hotel chambermaids, subscriptions to the Wall Street Journal and Barron’s, and a multiday trip to Los Angeles taken to locate the courthouse the EEOC might have used had his case gone to trial. On the toiletries he testified that he wasn’t going to drive home from San Diego for toothpaste. Treasury Regulation § 1.213-1(e)(2) disallows toothpaste and shaving cream by name.

And substantiation failed everywhere. In place of receipts he offered self-prepared lists he called “workschedules,” which recorded date, description, payment method, and payee — and omitted business purpose, the one element section 274(d) will not let a court supply. He also argued that nothing under $75 requires substantiation in any category, citing nothing. The Cohan rule couldn’t rescue him either, because Cohan estimates an amount for an expense already shown to be deductible, and he never got that far.

Then the sophistication factor. A taxpayer’s intelligence, education, and tax expertise bear on fraudulent intent, and the Court leaned on that hard: he “possesses more tax-specific knowledge than the average taxpayer, and he relies on that knowledge for a career. And not just any career, but one that requires him to examine returns for the same types of tax avoidance he himself engaged in.” When he argued the IRS should have been more flexible because his own audit practice is to allow a deduction claimed in the wrong year, the Court answered that its role is to apply the law as written.

Mrs. Janangelo walked. The Court found she had reasonable cause under section 6664(c)(1) for signing joint returns her husband prepared — a tax professional employed by the IRS, whose activities generated every disputed deduction — and held her not liable for the section 6662 penalties. That is the professional reliance defense running through a marriage, and it is worth studying next to the fraud holding it sits beside.

Read our full brief of Janangelo v. Commissioner.

Chapin v. Commissioner | Bad Records, Real Business

Chapin v. Commissioner, T.C. Memo. 2026-76 (Aug. 27, 2026) (Vasquez, J.), is the taxpayer win of the week, and it lands on the issue practitioners fight most often: section 183.

Frank Chapin ran an accounting practice in Sandpoint, Idaho, from 1970 until his death this past May. Sydney Gutierrez-Chapin grew up on an Illinois farm, bought a 120-acre Idaho ranch in 1982, and took veterinary courses through the University of Idaho Extension Service. Together they built a cattle and horse operation that peaked at 160 head of cattle and 43 horses across more than 300 acres. A 2002 chapter 11 became a chapter 7 in 2003, and by the end of 2004 the cattle, the equipment, and most of the land were gone.

They kept breeding horses. Nine to sixteen of them during 2009 through 2014, including a stallion available for stud, with continuing memberships in the Appaloosa Horse Club and the American Quarter Horse Association that required registering foals and filing annual breeding reports. The Schedule F losses ran from $9,876 to $22,740.

The Commissioner said hobby. But Judge Vasquez said business, and the reasoning is what makes the opinion useful. Both petitioners had grown up working livestock and applied that experience directly — Mrs. Gutierrez-Chapin performed most of the routine veterinary work herself. They monitored foaling horses four and five times a night. Both had been injured by horses. Work that physically punishing is hard to characterize as recreation under Treasury Regulation § 1.183-2(b)(9). And the accounting practice, while steady, never produced the kind of income that makes a $15,000 farm loss look like a tax shelter.

On recordkeeping the Court said the quiet part plainly: petitioners’ records “left something to be desired,” and that defect did not negate the profit motive. Section 183 “does not require that taxpayers operate their ventures with perfect business acumen,” citing Huff v. Commissioner, the miniature donkey case from 2021. Persistence through hardship may reflect unusual business judgment. It does not disprove an honest profit objective.

And everything else went the other way. The IRS reconstructed income using the bank deposits method after a judicial summons produced the accounts the couple hadn’t fully turned over, and the Court sustained the approach while carving out real money on the facts: a $149,025 closing-proceeds check deposited for a client, a $4,450 estate payment, small trust checks for an elderly client, tax refunds belonging to clients, and payroll-tax funds held for others. The Court took the full $149,025 out of gross receipts, rather than the $48,000 the IRS had conceded as disbursed that year.

The net operating loss carryovers and the capital loss carryovers died for lack of proof. Prior years’ returns and Schedules K–1 are statements of position, not substantiation, and the closing statements behind a $138,516 passthrough loss from 2004 were never put in the record. Late filing under section 6651(a)(1) was sustained for all six years, along with failure to pay and the section 6654 estimated tax addition for the two years the IRS prepared substitutes for return.

The accuracy-related penalties split, and that split is the part to remember. The Court declined to impose section 6662 penalties on the income adjustments and on the Schedule C and E deductions outside section 274(d), crediting Mr. Chapin’s monthly reconciliations, his ledger categories, and his allocation of expenses among personal, practice, and farm — and attributing the weak trial presentation to the petitioners’ age and the passage of time. On the section 274(d) items, the NOLs, and the S&F deductions, the penalties stuck. Negligence got sorted item by item rather than year by year.

Read our full brief of Chapin v. Commissioner.

Berenblatt v. Commissioner | The Record Is the Case

Berenblatt v. Commissioner, T.C. Memo. 2026-75 (Aug. 27, 2026) (Copeland, J.), is a whistleblower opinion, and it is the closest thing this week to law that binds.

Jeremy Berenblatt is a foreign exchange trader who was pitched a digital options shelter in 2000, funded an account, studied the product, concluded the payout would never materialize, and pulled his money out. In late 2007 IRS Criminal Investigation interviewed him once. By then CID had already extracted a $76 million fine from a law firm and a $456 million deferred prosecution agreement from a bank, both of which he would later name as target taxpayers.

In 2015 he filed a Form 211 claiming that his single interview handed the government the economic substance doctrine and turned the prosecutions around. The Special Agent who interviewed him told the Whistleblower Office otherwise: the investigation had been running two years, Mr. Berenblatt produced no documents, he never testified, more than 100 witnesses had already been interviewed, and a large volume of subpoenaed records had already been analyzed. The WBO denied the claim. He petitioned in 2017 and the case has been running ever since.

This round covers three motions — to supplement the administrative record, for in camera review of grand jury material, and to take judicial notice of fourteen proposed facts. All three were denied.

Whistleblower cases are record rule cases, reviewed on the administrative record under the APA, and supplementation is the exception rather than the rule. A movant has to land in one of the three City of Dania Beach categories: documents the agency deliberately or negligently excluded that may have been adverse to its decision, background needed to determine whether the agency considered all the relevant factors, or an agency failure to explain itself that frustrates judicial review. Mr. Berenblatt’s three categories of documents fit none of them.

He also asked the Court to sample 800 boxes of grand jury documents in camera. The answer runs through United States v. Baggot: a WBO investigation of an award claim, like a civil examination, isn’t preliminary to or in connection with a judicial proceeding, so the Rule 6(e)(3)(E)(i) exception never opens. The WBO could not have seen those materials, which means they could not have been part of the administrative file. And a movant seeking grand jury material has to show particularized need, not the good-faith belief standard from Zolin. The Court called the request a fishing expedition and declined.

Whistleblower counsel should still read this one, because Mr. Berenblatt won a point on the way to losing. The Commissioner argued that Treasury Regulation § 301.7623-3(e)(2)(ii) — requiring the administrative claim file to include “all debriefing notes and recorded interviews held with the whistleblower” — reaches only taint debriefings conducted after a Form 211 is filed. The Court read the text and found no such limit, and added that “recorded interviews” covers interviews recorded in handwritten notes as well as on audio or video. Had the CID interview happened because of his claim rather than seven years before it, the agent’s notes would have belonged in the record as a matter of regulation. Our brief of Whistleblower 972-17W v. Commissioner covers the companion question of what the whistleblower gets to see, and our overview of the IRS Whistleblower Program sets out the section 7623 mechanics.

Read our full brief of Berenblatt v. Commissioner.

What the Week Says About Records

Mr. Janangelo produced the most documentation of anyone here. Spreadsheets for every year, a retainer agreement, an engagement memo, a billing statement, checks with memo lines. It was all manufactured after the fact or around the fact, and manufacturing it is what cost him 75% of four years’ underpayment instead of 20%.

The Chapins produced less and produced it badly, and a judge looked at a general ledger reconciled monthly by a man who had been doing this since 1970 and found an honest effort inside a messy file. They lost their carryovers because the underlying documents were gone. They kept their farm losses and half their penalty exposure because the effort was real.

And Mr. Berenblatt wanted a record that didn’t exist when the agency decided. Courts reviewing agency action get neither more nor less than the agency had.

Freeman Law’s Tax Court litigation attorneys handle deficiency, collection, penalty, and whistleblower cases nationwide. If an examination has moved from questions about substantiation to questions about intent, that shift is worth taking seriously well before a notice of deficiency shows up.

More weekly briefs are collected in The Tax Court in Brief archive.

The full opinions are available from the U.S. Tax Court’s opinions search, and copies of each are posted at CourtListener: Janangelo, Chapin, and Berenblatt.

This article is for general information only and is not legal advice. Reading it does not create an attorney-client relationship. Tax outcomes turn on specific facts, and the law changes. Consult qualified counsel about your own situation.