Tax Court in Brief | Janangelo v. Comm’r | Civil Fraud Penalties Against an IRS Revenue Agent

Janangelo v. Commissioner, T.C. Summary Opinion 2026-8 | August 27, 2026 | Siegel, S.T.J. | Dkt. Nos. 13300-22S, 7232-23S, 14695-23S, 11844-24S

Short Summary

Peter Janangelo has worked as an IRS revenue agent for nearly twenty years, examining returns and conducting audits. He is also an attorney licensed in New York, a CPA licensed in Nevada and New York, admitted to practice before the Tax Court, and the holder of undergraduate and graduate business degrees. He prepared his own joint returns for 2018 through 2021 and signed them as paid preparer.

The IRS disallowed every deduction at issue for all four years and determined section 6663 civil fraud penalties against him, with section 6662 accuracy-related penalties in the alternative. The deficiencies totaled $34,344 and the fraud penalties $25,759.

The Court sustained all of it as to Mr. Janangelo. It relieved Mrs. Janangelo, a retired registered nurse, of the accuracy-related penalties determined against her.

The opinion runs 32 pages for a reason Special Trial Judge Siegel states in the second paragraph: taxpayer sophistication is one of the factors bearing on fraud, and “Mr. Janangelo is a pretty sophisticated taxpayer; Mr. Janangelo is an auditor at the IRS.”

Key Issues

Whether petitioners substantiated and were entitled to deductions claimed on Schedule C for a purported Social Security disability representation business in 2018 and to above-the-line and section 212 deductions attributed to an age discrimination lawsuit in 2019, 2020, and 2021.

Whether Mr. Janangelo is liable for the section 6663 civil fraud penalty for each of the four years.

Whether Mrs. Janangelo is liable for section 6662 accuracy-related penalties on underpayments arising entirely from her husband’s activities.

Primary Holdings

Petitioners established entitlement to none of the deductions at issue for any year. The 2018 Schedule C activity was a sham, was not a trade or business, and was not an activity engaged in for profit under section 183.

The section 62(a)(20) deduction for discrimination-suit legal expenses is capped at the amount includible in gross income on account of a judgment or settlement. Mr. Janangelo lost his EEOC case on summary judgment, received nothing, and therefore had no amount from which to deduct.

Mr. Janangelo is liable for the section 6663 fraud penalty for 2018, 2019, 2020, and 2021. The alternative section 6662 penalties do not apply to him by operation of section 6662(b).

Mrs. Janangelo had reasonable cause under section 6664(c)(1) for relying on her husband to prepare their joint returns and is not liable for the section 6662 penalties determined against her.

Key Points of Law

Section 67(g), added by the Tax Cuts and Jobs Act, suspends miscellaneous itemized deductions for taxable years beginning after December 31, 2017, and before January 1, 2026. All four years before the Court fall inside that window. The deductions Mr. Janangelo had claimed on Schedule A in 2016 — tax software, CPE, dues, periodicals, postage — reappeared for each year at issue under different labels.

A transaction is a sham if it has no purpose other than the creation of tax deductions. Neely v. United States, 775 F.2d 1092, 1094 (9th Cir. 1985); Falsetti v. Commissioner, 85 T.C. 332, 347 (1985). The 2018 Schedule C business existed to have Mr. Janangelo represent his own wife before the Social Security Administration in an application she never filed. The engagement agreement is dated December 28, 2018, the client memo December 30, and the whole activity ran 2.5 hours.

Under section 183, a taxpayer must engage in the activity with an actual and honest objective of making a profit, and in the Ninth Circuit that objective must be the predominant, primary, or principal one. Wolf v. Commissioner, 4 F.3d 709, 713 (9th Cir. 1993); Golanty v. Commissioner, 72 T.C. 411, 425–26 (1979). The expectation need not be reasonable, but it must be bona fide. Here the Court found it was neither, and that the primary objective “was to avoid paying the correct amount of tax.”

Section 274(d) forecloses estimation. A taxpayer must substantiate by adequate records or sufficient corroborating evidence the amount, the time and place, and the business purpose of travel and listed-property expenditures. Temp. Treas. Reg. § 1.274-5T(c)(2). Mr. Janangelo’s self-prepared “workschedules” recorded date, description, payment method, and payee. Business purpose was absent, which is the element the statute will not permit a court to fill in.

The Cohan rule estimates the amount of an expense already shown to be deductible; it does not establish deductibility. Vanicek v. Commissioner, 85 T.C. 731, 742–43 (1985); Rodriguez v. Commissioner, T.C. Memo. 2009-22 (“we can’t just guess”). Even where a receipt existed, Mr. Janangelo could not articulate how the expense was appropriate and helpful to a business or connected to the production of income.

Section 6663(a) imposes a penalty of 75% of the portion of an underpayment attributable to fraud, and the Commissioner carries the burden by clear and convincing evidence. § 7454(a); Rule 142(b); Petzoldt v. Commissioner, 92 T.C. 661, 699 (1989). Fraud is never imputed or presumed. Disagreeing with the IRS is not fraud. What is required is intentional wrongdoing with the specific purpose of evading a tax believed to be owing. Bradford v. Commissioner, 796 F.2d 303, 307 (9th Cir. 1986).

The badges the Court found present: understatement of income through overstated deductions, failure to maintain adequate records, implausible and inconsistent explanations, filing false documents, and failure to cooperate. Niedringhaus v. Commissioner, 99 T.C. 202, 211 (1992); Vanover v. Commissioner, T.C. Memo. 2012-79. No single badge decides the question; several together can carry it.

Sophistication is a proper part of the analysis. “A taxpayer’s intelligence, education, and tax expertise are relevant in determining fraudulent intent.” Cole v. Commissioner, T.C. Memo. 2010-31, aff’d, 637 F.3d 767 (7th Cir. 2011). The Court applied it directly: Mr. Janangelo holds more tax knowledge than the average taxpayer, earns his living from it, and works in a job that requires him to examine returns for the same avoidance he practiced on his own.

Reliance on a tax professional can establish reasonable cause where the adviser was competent, the taxpayer supplied accurate information, and the taxpayer actually relied in good faith. Neonatology Assocs., P.A. v. Commissioner, 115 T.C. 43, 99 (2000). Mrs. Janangelo had used professional preparers before the marriage, every disputed deduction traced to her husband’s activities, and her husband is a tax professional employed by the IRS. The Court held her reliance reasonable.

Insight

The distance between a section 6662 case and a section 6663 case is 55 percentage points, and this opinion maps the crossing precisely.

Most disallowed-deduction cases end at negligence. But what moved this one is that Mr. Janangelo did not merely claim deductions the Code denied him — he built paper to support them. A retainer agreement between spouses. A check for $812 that matched, almost to the dollar, what his wife paid him every December for household expenses. A billing statement reporting $14,500 in legal fees that the lawyer corrected to $4,500 after an IRS summons, having prepared the original from numbers his client gave him. A check bearing the memo line “Oral hearing — 6/11/2018” for a hearing that never happened, in a claim never filed. And documents that say things the facts don’t support are what separates carelessness from intent.

Sophistication cuts in both directions inside a single household, which is the second lesson. The same expertise that made Mr. Janangelo’s explanations impossible to believe is what made his wife’s reliance on him credible. Practitioners who reach for innocent spouse relief whenever one spouse created the whole problem should note that the Court got Mrs. Janangelo home on the section 6664(c)(1) reasonable cause defense without running any section 6015 analysis at all.

The opinion also carries an unusual amount of professional-conduct commentary. Mr. Janangelo appeared pro se and as counsel for his wife. The Court called his attention to Rule 33(b), to Circular 230 at 31 C.F.R. §§ 10.50 and 10.51, and to Model Rules 1.6(a) and 3.3(a), and it sealed a motion he filed after he attached a document sealed by another court, together with DOJ correspondence about an unrelated taxpayer he was handling in his IRS capacity. Asked about section 6103, he answered that “on balance the rights of the Petitioners in seeking a continuance outweighed the disclosure issue.” The Court’s response: “It did not, and we sealed his motion.”

One limit on all of this. Section 7463(b) makes a small tax case opinion unreviewable and unusable as precedent in any other case. Nothing here binds a future court. As a working illustration of how the badges of fraud assemble into clear and convincing evidence, and of where civil fraud parts company with an accuracy-related penalty, it is worth the read. If the questions in your examination have shifted from what you can document to what you were thinking, the posture of the audit has changed.

The full opinion is posted at CourtListener. More weekly briefs are collected in The Tax Court in Brief archive.

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.