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T.C. Summary Opinion 2026-8

PETER J. JANANGELO, JR. AND MARY ANN JANANGELO,

Petitioners

COMMISSIONER OF INTERNAL REVENUE,

Respondent

—————

Docket Nos. 13300-22S, 7232-23S,

14695-23S, 11844-24S.

Filed August 27, 2026.

—————

Peter J. Janangelo, Jr., for petitioners.

Gretchen W. Altenburger, Andre T. Andoyan, Michael T. Garrett, 1

Michael R. Harrel, and Samantha N. Winter McAlpin, for respondent.

SUMMARY OPINION

SIEGEL, Special Trial Judge: These cases were heard pursuant

to the provisions of section 7463 2 of the Internal Revenue Code in effect

when the Petitions were filed. Pursuant to section 7463(b), the decisions

to be entered are not reviewable by any other court, and this Opinion

shall not be treated as precedent for any other case.

We find that petitioners are not entitled to any of the deductions

at issue, that Mr. Janangelo is liable for the civil fraud penalty for each

23S.

1 Mr. Garrett appeared only in Docket Nos. 13300-22S, 7232-23S, and 14695-

2 Unless otherwise indicated, statutory references are to the Internal Revenue

Code, Title 26 U.S.C. (Code), in effect at all relevant times, regulation references are

to the Code of Federal Regulations, Title 26 (Treas. Reg.), in effect at all relevant times,

and Rule references are to the Tax Court Rules of Practice and Procedure.

Served 08/27/26

year before us, and that Mrs. Janangelo is not liable for the negligence

penalties determined against her.

Background

The simplest version of this small tax case Opinion is that

petitioners are liable for the deficiencies determined by the Internal

Revenue Service (IRS) for each of the four years before us because they

failed to meet their burden of proof and establish entitlement to any of

the deductions claimed. If that were the whole story, however, this

Opinion would not be 32 pages long. There is also a fraud penalty at

issue for each year, and that requires a few more pages to discuss what

petitioners claimed on their tax returns and to make clear how the IRS

proved fraud by clear and convincing evidence. But really, this Opinion

is long because one of the factors we consider in evaluating fraud is the

sophistication of the taxpayer. And Mr. Janangelo is a pretty

sophisticated taxpayer; Mr. Janangelo is an auditor at the IRS.

Petitioners

Peter J. Janangelo, Jr., and Mary Ann Janangelo (Janangelos or

petitioners) are a married couple. Although they jointly filed their

federal income tax returns for 2018, 3 2019, 4 2020, 5 and 2021 6 (years at

issue), all of the disallowed deductions are related to Mr. Janangelo’s

activities. 7 The Janangelos lived in Nevada when they timely filed the

Petition in each of these cases.

Mr. Janangelo was employed full time at the IRS during the years

at issue and, at the time of trial, had been for almost 20 years. 8 In his

capacity as a revenue agent for the IRS, Mr. Janangelo conducts audits

and reviews tax returns. He belongs to the National Treasury

Employees Union (NTEU) and has been a union steward.

3 Docket No. 13300-22S.

4 Docket No. 7232-23S.

5 Docket No. 14695-23S.

6 Docket No. 11844-24S.

7 We note that both petitioners signed their income tax returns under penalty

of perjury. See § 6065.

8 Mr. Janangelo is employed by the IRS, not the IRS Office of Chief Counsel.

Before working for the IRS, Mr. Janangelo operated a tax and

estate planning practice in the New York City metropolitan area and

held auditor positions with multiple government entities. He is an

attorney licensed to practice in New York and admitted to practice

before this Court. 9 He is also a certified public accountant (CPA) licensed

in Nevada and New York, and he holds undergraduate and graduate

degrees in business administration.

Although neither credential is required for his employment as a

revenue agent, Mr. Janangelo is required to earn continuing legal

education and continuing professional education (CPE) credits to

maintain his professional licenses as an attorney and a CPA. The IRS

offers in-house and online educational programs that would provide the

necessary CPE, but Mr. Janangelo routinely attended outside seminars,

explaining that he preferred to keep his training “separate from his

employment with the IRS.”

Mrs. Janangelo was employed as a registered nurse during the

years at issue but has since retired. She suffers from some long-term

health challenges.

The Janangelos married in 2013 and continued to keep separate

bank accounts. Mr. Janangelo manages the household finances. At least

during the years at issue, the couple’s practice was to split living

expenses. Mrs. Janangelo would give Mr. Janangelo a check for half of

her share of the monthly household expenses every two weeks. For

example, during 2018, Mrs. Janangelo’s monthly share of the household

expenses was about $1,800. 10 She typically wrote her husband a $900

check every two weeks, except for the month of December. In December

2018 she wrote him three checks totaling $1,812: $900, $812, and $100.

Each check was made out to Mr. Janangelo personally.

9 Mr. Janangelo appeared on his own behalf and for Mrs. Janangelo as her

attorney of record. We call Mr. Janangelo’s attention to Rule 33(b) (stating that a

signed pleading signifies that “to the best of the signer’s knowledge, information, and

belief formed after reasonable inquiry” it is “well grounded in fact” and “warranted by

existing law”). See also Fed. R. Civ. P. 11(b); Model Rules of Pro. Conduct r. 3.3(a)

(A.B.A. 2026). Mrs. Janangelo waived any conflict of interest. See Rule 24(g)(1); Model

Rules of Pro. Conduct r. 1.7, 1.8.

10 Monetary amounts are sometimes rounded to the nearest whole dollar.

II.

Mr. Janangelo’s Other Litigation

Mr. Janangelo was involved in more than one legal dispute with

the IRS outside of these cases. Those proceedings are discussed briefly

here because of their relationship with some of the claimed deductions

at issue.

MSPB Litigation

Mr. Janangelo was a party to Merit Systems Protection Board

(MSPB) litigation concerning his employment. This litigation arose from

Mr. Janangelo’s managers’ proposing to terminate his employment at

the IRS because of multiple instances of unprofessional conduct. 11 The

case settled in 2017, and Mr. Janangelo kept his job. He also had his

performance reviews retroactively revised upward and was awarded

$7,500 in attorney’s fees. The fees were paid directly to his attorney,

James P. Kemp. Mr. Kemp’s legal practice focuses in three areas:

employment law, workers’ compensation, and bankruptcy law.

FOIA Lawsuit

Mr. Janangelo was party to a Freedom of Information Act (FOIA)

suit for personnel documents from the Treasury Inspector General for

Tax Administration (TIGTA) pertaining to at least one of the managers

11 According to the record, Mr. Janangelo’s unprofessional conduct at work

included using ethnic slurs, claiming that a particular coworker was providing sexual

favors in exchange for career advancement opportunities, and failing to follow proper

procedures. There was also an incident in which Mr. Janangelo was alleged to have

assisted a colleague in faking a medical emergency. Because none of that is before us,

we can only note that Mr. Janangelo exhibited multiple instances of unprofessional

conduct here in this Court. Examples include filing frivolous motions, failing to appear

for a scheduled hearing, and disparaging a multilingual witness for having been

educated in another country. In addition, Mr. Janangelo violated the order of another

court when he filed in the record of these cases a document sealed by that other court

and involving an unrelated taxpayer.

The sealed document was accompanied by email correspondence between the

Department of Justice and Mr. Janangelo in his professional capacity concerning a

case he was working on. The sealed document and the emails were filed, without

explanation, as the only “substantive” pages of petitioners’ Motion for Continuance.

Respondent raised a concern about a potential section 6103 violation, and Mr.

Janangelo responded as follows: “In determining compliance with IRC# 6103, on

balance the rights of the Petitioners in seeking a continuance outweighed the

disclosure issue.” It did not, and we sealed his motion.

Mr. Janangelo’s attention is called to Rule 201(a), 31 C.F.R. §§ 10.50 and 10.51

(2026), and rule 1.6(a) of the Model Rules of Professional Conduct.

that tried to have him fired. TIGTA refused to provide the records

because they pertained to a third party. Mr. Janangelo filed suit with

the U.S. District Court for the District of Nevada in an effort to compel

TIGTA to release the documents he had requested. Mr. Janangelo lost.

See Janangelo v. Treasury Inspector Gen. for Tax Admin., No. 16-cv-906,

2017 U.S. Dist. LEXIS 46505 (Mar. 29, 2017). Mr. Janangelo appealed

to the U.S. Court of Appeals for the Ninth Circuit; the appellate court

affirmed. See Janangelo v. Treasury Inspector Gen. for Tax Admin., 726

F. App’x 660 (9th Cir. 2018). Mr. Janangelo’s FOIA litigation ended

when the Supreme Court of the United States denied his petition for

writ of certiorari. See Janangelo v. Treasury Inspector Gen. for Tax

Admin., 586 U.S. 999 (2018).

Age Discrimination Lawsuit

The next dispute was an age discrimination claim. Both Mr.

Kemp and another attorney, Gary M. Gilbert, represented Mr.

Janangelo in that case.

In 2019 Mr. Janangelo applied for an Appeals officer position

within the IRS’s Independent Office of Appeals. When he was not

selected, Mr. Janangelo filed a complaint with the U.S. Equal

Employment Opportunity Commission (EEOC) alleging employment

discrimination in violation of the Age Discrimination in Employment

Act of 1967, as amended, 29 U.S.C. §§ 621–634. In August 2021 the

EEOC granted the IRS’s motion for summary judgment, finding that

there were nondiscriminatory reasons for which Mr. Janangelo was not

selected for the job. Mr. Janangelo’s appeal of that decision was denied

on March 14, 2022.

Mr. Janangelo received no award of any kind from the lawsuit,

and he did not get the promotion. Although nothing in the record

suggests that this is so, Mr. Janangelo argued before us that the only

reason he lost his age discrimination case was because an IRS employee

lied during a deposition.

HSA Collection Action

Petitioners were enrolled in the American Postal Workers Union

High Option Health Plan (APWUHP) through Mr. Janangelo’s IRS

employment. They were not enrolled in a high-deductible health plan for

2018 or any of the years at issue. Despite not being in a high-deductible

plan, petitioners reported a $7,900 health savings account (HSA)

contribution on their 2018 federal income tax return. Mr. Janangelo

claimed that his high option health plan qualified for treatment under

the Code permitting certain non-high-deductible health plans to qualify

for an HSA deduction. After a lawsuit, the matter resolved in the

Government’s favor for payroll taxes owed on the erroneous

contribution. 12

III.

Miscellaneous Itemized Expense Deductions

Before 2018 section 67 allowed taxpayers to deduct employee

business expenses. Those expenses, along with certain miscellaneous

deductions, were reported on Schedule A, Itemized Deductions, attached

to Form 1040, U.S. Individual Income Tax Return. The “Job Expenses

and Certain Miscellaneous Deductions” reported on that schedule were

ostensibly related to employment (for example, union dues and training

costs) that met certain requirements. See §§ 67(a), 162(a) (permitting

the deduction of ordinary and necessary expenses incurred in carrying

on a trade or business); see also Boyd v. Commissioner, 122 T.C. 305, 313

(2004); Deputy v. duPont, 308 U.S. 488, 495 (1940) (explaining that an

ordinary expense is one that commonly or frequently occurs in the

taxpayer’s business); Commissioner v. Heininger, 320 U.S. 467, 471

(1943) (explaining that a necessary expense is one that is appropriate

and helpful in carrying on the taxpayer’s business); Treas. Reg. § 1.1621(a). Generally, the performance of services as an employee constitutes

a trade or business. Primuth v. Commissioner, 54 T.C. 374, 377 (1970).

The Tax Cuts and Jobs Act of 2017 (TCJA), Pub. L. No. 115-97,

§ 11045, 131 Stat. 2054, 2088, amended section 67 by suspending

miscellaneous itemized deductions for any taxable year beginning after

December 31, 2017, and before January 1, 2026. See § 67(g). 13 All of the

years before us fall into that suspension period.

The Janangelos claimed miscellaneous itemized deductions for

the years before the Court in the same manner as before the enactment

of the TCJA. A copy of the Janangelos’ 2016 Form 1040 was made part

of the record. The schedules and attachments to that return show

unreimbursed employee business expenses, as well as “IRC 212”

expenses. 14 Section 212 permits the deduction of certain expenses that

12 A copy of Janangelo v. Internal Revenue Service, No. IRS 23-530 (U.S.P.S.

July 9, 2024), was included with the parties’ stipulations.

13 As of July 4, 2025, this subsection was redesignated subsection (h).

14 We make no determination as to whether any of the Janangelos’ 2016

deductions were proper because that year is not before us.

are not part of a trade or business but are related to generating taxable

income. Most, if not all, of the miscellaneous itemized deductions

petitioners claimed for 2016 are the same as the expenses they claimed

for the years at issue, as shown in the following chart:

Expense

2016

2018

2019

2020

2021

Drake Tax Software 15

IRS Tax Forum CPE 16

Legal Fees

Nevada State Board of Accountancy Dues

NTEU Dues

Periodicals

U.S. Postal Service

National Association

(NATP) Dues

IV.

Tax

Practitioners

2018: Peter J. Janangelo, Jr., SSA Disability Claim Services

The Notice of Deficiency issued to the Janangelos for 2018

determined a deficiency of $5,590 and a section 6663 penalty of $4,193.

A section 6662 penalty was approved in the alternative. Respondent

conceded the section 6663 penalty as to Mrs. Janangelo but maintains

that a section 6662 penalty is still appropriate. The biggest adjustment

to petitioners’ 2018 return relates to an activity reported on Schedule C,

15 Although respondent alleged in the Answer filed at Docket No. 13300-22S

that Mr. Janangelo admitted to sometimes preparing tax returns “for friends,” nothing

in the record suggests that Mr. Janangelo used tax preparation software as part of his

work for the IRS or in any other professional capacity. The Janangelos did not report

income attributable to return preparation, although Mr. Janangelo listed himself as a

paid preparer on his own returns.

16 It is unclear from the record whether Mr. Janangelo attended this IRS tax

conference as part of his employment with the IRS, or for other reasons. The answer

would not change the result.

Profit or Loss From Business, called Peter J. Janangelo, Jr., SSA

Disability Claim Services (SSA DCS).

Mr. Janangelo reported income and expenses allegedly

attributable to SSA DCS in 2018 on Schedule C. The articulated purpose

of SSA DCS was to have Mr. Janangelo represent Mrs. Janangelo before

the Social Security Administration (SSA) in a “possible application for

social security disability benefits” related to her long-term health

challenges.

Because Mr. Janangelo was expressly prohibited by his

employment with the IRS from performing legal work for anyone other

than the IRS, he needed to get permission to represent his wife. In an

email to the IRS sent September 4, 2018, Mr. Janangelo asked for

permission to do that, writing that he should not be prohibited from

“representing [his] wife as an attorney before the Social Security

Administration concerning [her] disability claim, because this claim

does not concern any ‘tax matters’.” The copy of Form 7995, Outside

Employment or Business Activity Request, in the record from

September 18, 2018, is incomplete. It is unclear whether Mr. Janangelo

ever obtained permission to represent his wife. It is also unclear whether

the IRS was under the impression that there was an active case pending

before the SSA. Regardless, no application for SSA disability benefits for

Mrs. Janangelo was filed.

The record contains a document styled as a retainer agreement

entered into between Mr. and Mrs. Janangelo. It is dated December 28,

2018. According to this document, Mr. Janangelo agreed to spend 2.5

hours (at $325 per hour) “review[ing] the applicable portions of the

Social Security Administration (‘SSA’) website concerning the federal

law applicable to submitting an application for social security disability

benefits” and providing “a written analysis . . . concerning the applicable

law and requirements, regarding the prospective application.”

Accompanying the so-called retainer agreement was a check for $812

Mrs. Janangelo wrote to Mr. Janangelo dated December 28, 2018.

The “client memo” in the file is dated December 30, 2018, signed

by Mr. Janangelo, and labeled as “Hand-Delivered” to Mrs. Janangelo

at their shared residence. In this document, Mr. Janangelo reported

that, after a review of the SSA website, he had determined that it would

be too time consuming for Mrs. Janangelo to apply for benefits and the

likelihood of easy success would be small.

The Janangelos reported on their 2018 return that SSA DCS had

$812 in gross receipts against which Mr. Janangelo claimed $23,354 in

expenses:

2018 Expense

Amount

Insurance (other than health)

$617

Legal and Professional Services

16,844

Supplies

347

Other Expenses (including Drake Tax software, CPE expenses, bar and

union dues, license renewals, and periodicals)

5,546

2019, 2020, and 2021: Other Adjustments Affecting AGI

2019

The Notice of Deficiency issued to the Janangelos for 2019

determined a deficiency of $6,090 and a section 6663 penalty of $4,568.

Section 6662 penalties were approved in the alternative. Respondent

has conceded the section 6663 penalty as to Mrs. Janangelo but

maintains that a negligence or substantial understatement penalty is

still appropriate. The deficiency stems from respondent’s disallowance

of a $25,374 deduction from petitioners’ 2019 income.

According to Mr. Janangelo, the disallowed deductions were all

for expenses incurred in litigating his age discrimination lawsuit, but

other than for the legal fees, he never provided an explanation detailing

how they were connected. The expenses included the following:

2019 Expense

Amount

Drake Tax Software

$330

IRS Tax Forum CPE

2,139

Legal Fees (Kemp & Kemp Attorneys at Law)

10,000

NATP Dues

NATP Tax Course CPE

195

1,578

Nevada State Board of Accountancy (NSBOA) Dues

120

NTEU Dues

360

NTEU Steward Training

1,502

Periodicals (Reason Magazine)

Supplies (Office Max, Nevada Legal Forms)

United States Postal Service

Unreimbursed Mileage

“Disagreed Amount – re: IRC # 223(c)(2)”

8,998

Conferences

Incorporated into Mr. Janangelo’s age discrimination lawsuit

tally were expenses stemming from Mr. Janangelo’s attendance at

conferences. These expenses included car washes, kenneling expenses

for the family dogs, and toiletries. For example, Mr. Janangelo provided

the expense information below identifying expenditures allegedly

related to his attendance at the 2019 IRS Tax Forum, all labeled as

“IRC# 162 expenses.” Section 162 permits the deduction of expenses that

were incurred as “traveling expenses . . . while away from home in the

pursuit of a trade or business.” § 162(a)(2).

2019 Tax Forum Expense

Business Mileage (9/15/2019 to 9/20/2019)

Amount

$594

Car Wash (cash, 9/14/2019)

Hotel and Parking Expense (8/9/2015 to 8/14/2015)[sic]

610

Kennel Expense (9/14/2019 to 9/20/2019)

295

Meals (reduced by 50%, 9/15/2019 to 9/20/2019)

192

Office Supplies (cash, 9/16/2019)

Registration Fee for Tax Forum (4/30/2019)

235

Tips for Hotel Chambermaid (cash, 9/15/2019 and 9/20/2019)

Toiletries (9/16/2019)

115

Wall Street Journal and NY Times (8/9/2015 to 8/15/2015)[sic]

Another example is the list of expenses identified by Mr.

Janangelo as stemming from his 2019 NTEU steward training in

Arizona. They were labeled “IRC# 162 expenses – adjustment to AGI,”

and included with his age discrimination lawsuit tally:

NTEU Training Expense

Business Miles (5/19/2019 to 5/24/2019)

Amount

$520

Car Wash (cash, 5/19/2019)

Hotel (5/19/2019 to 5/24/2019)

525

Meals (reduced by 50%, 5/19/2019 to 5/24/2019)

182

Tips for Hotel Chambermaid (cash, 5/19/2019 to 5/24/2019)

Toiletries/Incidentals/Office Supplies (5/19/2019 to 5/24/2019)

185

Wall Street Journal and NY Times (cash, 5/19/2019 to 5/24/2019)

“IRC #223(c)(2)”

The Janangelos were not enrolled in an eligible high-deductible

health plan in 2019, and thus they were not eligible for an HSA

contribution deduction. But Mr. Janangelo’s position—which he

maintained even after the HSA collection action had been decided—is

that the $8,998 listed as “Disagreed Amount – re: IRC # 223(c)(2)” on

the materials he presented to the IRS qualified as an exception of some

sort. He testified:

I didn’t take a deduction for an HSA. I took a deduction in

2019, . . . , for an exception which treats it for income tax

purposes--because of the change in the amount of

deductibles, it treats it for income tax purposes as

essentially a high-deductible health plan, but it’s not a

high-deductible health plan. It’s a carve-out, I think

because Congress keeps changing the rules on the amount

of the deductible.[17]

2020

The Notice of Deficiency issued to the Janangelos for 2020

determined a deficiency of $4,797 and a section 6663 penalty of $3,598.

Section 6662(c) negligence penalties were approved in the alternative.

Respondent has conceded the section 6663 penalty as to Mrs. Janangelo

but maintains that a negligence penalty is appropriate. This Notice also

concerned the same “other adjustments affecting AGI” as did the Notice

of Deficiency issued for 2019.

The Janangelos claimed a deduction of $19,987, which, like the

one claimed for the previous year, was comprised of expenses

purportedly related to Mr. Janangelo’s age discrimination case: $10,000

in payments to Gary Gilbert, Esq., and $6,356 in payments to court

reporter Gregory Edwards, LLC, with the remainder being the same mix

of deductions as Mr. Janangelo had claimed for the other years: Drake

Tax software, photocopies, conference-related travel, subscriptions to

periodicals (e.g., The Wall Street Journal, Barron’s), and professional

licensing and dues (e.g., the New York State Bar Association, NATP). As

with 2019, Mr. Janangelo provided no clear explanation detailing how

17 To the extent Mr. Janangelo is referring to section 223(c)(2)(H), added to the

Code for years beginning in 2025, that change would not apply for the years before us

and it was not in place at the time he filed his 2019 return. He did not cite, and we

were unable to identify, a provision that would support his claim.

the nonlegal expenses may have related to his age discrimination

lawsuit for 2020.

2021

The Notice of Deficiency issued to the Janangelos for 2021

determined a deficiency of $17,867. It also determined a section 6663

penalty of $13,400 against Mr. Janangelo, with a section 6662 penalty

in the alternative. Respondent determined (and continues to maintain)

that a section 6662 penalty is appropriate as to Mrs. Janangelo for 2021.

Once again, the deficiency stemmed from the disallowance of the

claimed expense deductions—$74,447—purportedly related to Mr.

Janangelo’s age discrimination lawsuit.

In addition to the $68,008 Mr. Janangelo claims to have paid Mr.

Gilbert’s firm, Gilbert Employment Law, in 2021, the expenses Mr.

Janangelo attributed to his age discrimination lawsuit for 2021 included

Drake Tax software, trips to conferences, dues, office supplies, and

periodicals. Mr. Janangelo also included the cost of a multiday trip to

Los Angeles that he claimed was to find out where a particular

courthouse used by the EEOC was located, just in case his age

discrimination case had gone to trial.

Discussion

The Janangelos’ primary argument in opposition to each of the

Notices of Deficiency is that the audits leading to their issuance were all

performed in retaliation for Mr. Janangelo’s MSPB litigation, including

his TIGTA complaint giving rise to the FOIA lawsuit. The record does

not support this argument. Moreover, we may not look behind a Notice

of Deficiency. Greenberg’s Express, Inc. v. Commissioner, 62 T.C. 324,

328 (1974) (“[A] determination as to a [taxpayer’s] tax liability must be

based on the merits of the case and not on any previous record developed

at the administrative level.”).

We also note that witness credibility is an important

consideration in trial matters. As a trier of fact, it is our duty to listen

to the testimony, observe the demeanor of the witnesses, weigh the

evidence, and determine what we believe. Diaz v. Commissioner, 58 T.C.

560, 564 (1972). Aside from the record’s patently contradicting many of

Mr. Janangelo’s claims, some of his arguments can only be described as

outlandish, more so in light of his professional background. He persisted

in making arguments based on demonstrably false representations,

even after intervening events made it clear that he was in the wrong.

Even when his testimony was unopposed, we are not required to accept

it at face value. See, e.g., Neonatology Assocs., P.A. v. Commissioner, 115

T.C. 43, 84 (2000), aff’d, 299 F.3d 221 (3d Cir. 2002). We did not find Mr.

Janangelo to be a reliable or credible witness.

Burden of Proof; Substantiation

As a general rule, the Commissioner’s determination of a

taxpayer’s liability in a Notice of Deficiency is presumed correct, and the

taxpayer bears the burden of proving that the determination is

incorrect. Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933). The

Janangelos do not contend that the burden of proof should shift to

respondent pursuant to section 7491(a). In any event, there is no support

in the record for shifting the burden of proof in accordance with that

provision.

Deductions are a matter of legislative grace, and the taxpayer’s

burden requires him to establish entitlement to any claimed deduction.

INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992); New Colonial

Ice Co. v. Helvering, 292 U.S. 435, 440 (1934). A taxpayer claiming a

deduction must demonstrate both that the deduction is allowable

pursuant to some statutory provision and that the expense to which the

deduction relates has been paid or incurred. See § 6001; Hradesky v.

Commissioner, 65 T.C. 87, 89–90 (1975), aff’d per curiam, 540 F.2d 821

(5th Cir. 1976); Treas. Reg. § 1.6001-1(a). This is true whether the

deductions from income are for miscellaneous itemized deductions

under section 67(a); ordinary and necessary expenses paid or incurred

during the taxable year in carrying on a trade or business under section

162(a); expenses incurred for the production of income under section

212(1); or traveling expenses, including meals and lodging, incurred by

a taxpayer while traveling away from home in the pursuit of a trade or

business under sections 162(a)(2) and 274(d).

Substantiation of an expense requires taxpayers to keep and

provide books of accounts or records sufficient to establish “matters

required to be shown by such person in any return of such tax or

information.” Treas. Reg. § 1.6001-1(a); see also § 6001; INDOPCO, Inc.

v. Commissioner, 503 U.S. at 84.

For some types of expenses, a lack of substantiation can be

overcome. See, e.g., Phillips v. Commissioner, T.C. Memo. 2013-215,

at *22–23. For these expenses, “if a taxpayer establishes that a

deductible expense has been paid but cannot establish the precise

amount of the deductible expense, the Court may estimate the amount.”

Id. at *23 (citing Cohan v. Commissioner, 39 F.2d 540, 543–44 (2d Cir.

1930)). “In making the estimate, the Court bears heavily against the

taxpayer who failed to more precisely substantiate the expense.” Id.

(citing Cohan v. Commissioner, 39 F.2d at 544). “The Court will not

estimate a deductible expense unless the taxpayer presents a sufficient

evidentiary basis on which an estimate can be made.” Id. (citing Vanicek

v. Commissioner, 85 T.C. 731, 742–43 (1985)); see also Rodriguez v.

Commissioner, T.C. Memo. 2009-22, slip op. at 11 (stating, with respect

to the Cohan rule, that “we can’t just guess”).

Other types of expenses, however, may not be estimated because

of the strict substantiation requirements applicable to them. See

§ 274(d); Sanford v. Commissioner, 50 T.C. 823, 827–28 (1968), aff’d per

curiam, 412 F.2d 201 (2d Cir. 1969). Section 274(d) provides that no

deduction shall be allowed for, among other things, traveling expenses

and expenses with respect to listed property (including passenger

automobiles) “unless the taxpayer substantiates by adequate records or

by sufficient evidence corroborating the taxpayer’s own statement”

(1) the amount of the expenditure or use; (2) the time and place of the

expenditure or use; and (3) the business purpose of the expenditure or

use. Sanford, 50 T.C. at 827; Temp. Treas. Reg. § 1.274-5T(a).

Substantiation for this purpose requires the taxpayer to maintain an

account book, a diary, a log, a statement of expenses, trip sheets, or a

similar record prepared contemporaneously with the expenditure and

documentary evidence (e.g., receipts or bills). Temp. Treas. Reg. § 1.2745T(c)(2)(i) and (ii).

Instead of receipts or other source documents, Mr. Janangelo

relied heavily on his own prepared lists of expenses he called

“workschedules” to support his claimed deductions. He described these

lists as follows: “For each expense, the workschedule states the (1) date

the expense was incurred[,] (2) description of the expense[,] (3) method

[of] payment of the expense (i.e. – check number, debit)[,] and (4) the

payee of the expense.” Notably absent was the business purpose of the

expenditure or use. See Sanford, 50 T.C. at 827; see also § 274(d). Despite

Mr. Janangelo’s testimony that these lists “fully explain” all of his

claimed deductions, they are not proper substantiation for most

business expenses, and they clearly do not meet the heightened

requirements for travel expenses as imposed by the Code.

Mr. Janangelo argues that he is not required to substantiate any

expense under $75, no matter what the category. He cites no authority

for this proposition. His insistence that we accept his position relying

only on his say-so is not reasonable. Nor does his say-so provide

authority for his return position. See Tokarski v. Commissioner, 87 T.C.

74, 77 (1986) (stating that we are not required to accept a taxpayer’s

self-serving testimony).

Even for those few instances where the record included a receipt

or where Cohan might have permitted the Court to infer the amount of

an expense, Mr. Janangelo did not establish that the deductions were

allowable pursuant to the Code. He was unable to credibly articulate

how the reported expenses might have been appropriate and helpful in

carrying on a business, or how they might have been legitimately related

to the production of income. We note in particular the considerable

overlap among all of his years’ expenses; for each year before us he

claimed the same set of expenses, notwithstanding that his alleged

income-producing activity changed. His claims are simply not credible.

But because the deficiencies alone are not the only issues for resolution,

it is important that we provide additional detail.

II.

2018: SSA DCS

Mr. Janangelo asserts that SSA DCS was a bona fide business

established to represent Mrs. Janangelo in pursuit of an SSA disability

claim, and thus expenses related to the operation of that business should

be deductible as reported. Aside from questions as to whether the

expenses were paid or incurred, there are also questions about whether

the so-called business was an activity engaged in for profit. See generally

§ 183. At trial, Mr. Janangelo stated: “I used to my advantage the tax

laws which were afforded to me to properly and legally operate a

Schedule C business for the 2018 year.” But we remind him that a

transaction is a sham if it has no purpose other than the creation of tax

deductions. See, e.g., Neely v. United States, 775 F.2d 1092, 1094 (9th

Cir. 1985); Zmuda v. Commissioner, 731 F.2d 1417, 1421 (9th Cir. 1984),

aff’g 79 T.C. 714 (1982); see also Falsetti v. Commissioner, 85 T.C. 332,

347 (1985) (“We define ‘sham in substance’ as the expedient of drawing

up papers to characterize transactions contrary to objective economic

realities and which have no economic significance beyond expected tax

benefits.”).

SSA DCS Was Not a Trade or Business.

The record does not support petitioners’ contention that the socalled business was anything other than a sham, and for the reasons

discussed below we find that SSA DCS was not a trade or business.

Inaccurate Reporting of Income

The couple shared household expenses, and Mrs. Janangelo wrote

bimonthly checks to Mr. Janangelo for that purpose. For most of 2018

she paid him $1,800 per month in installments of $900. In December of

2018, however, Mrs. Janangelo wrote three checks to her husband

instead of two: one for $900, one for $812, and one for $100. The

Janangelos contend that the $812 check dated December 28, 2018, was

payment for professional services pursuant to the “retainer agreement.”

Respondent contends that it represents payment for household

expenses. We do not find Mr. Janangelo’s contention to be credible.

The checks given to Mr. Janangelo in December 2018 produce

nearly the same amount Mrs. Janangelo would have paid her husband

that month regardless of any legal services provided ($1,812 instead of

$1,800). Additionally, the $812 check, like the others, was made payable

to Mr. Janangelo, not to SSA DCS. It is clear that the check represented

Mrs. Janangelo’s share of routine household expenses rather than a

genuine payment for services. Under the circumstances surrounding

SSA DCS, this check did not represent legitimate income.

Inaccurate Reporting of Expenses

All of the SSA DCS activity, from the “engagement agreement” to

the “client memorandum,” spanned only a handful of hours in the

waning days of 2018. Yet Mr. Janangelo claimed deductions for expenses

incurred throughout the year, the same expenses he had deducted before

the TCJA took effect. The so-called business appears to be an attempt to

continue to claim the same deductions from income he had previously

claimed and not a bona fide trade or business.

Additionally, there are instances where the record demonstrates

that certain expenses were inaccurate as reported. The claim for “Legal

and Professional Services” is particularly illustrative.

The Janangelos reported that SSA DCS had paid one of Mr.

Janangelo’s attorneys, Mr. Kemp, $16,844 for “Legal and Professional

Services” in 2018. Mr. Janangelo contended, even through trial, that

$14,500 of that amount represented legal fees paid to Mr. Kemp to assist

with Mrs. Janangelo’s potential disability benefits application, SSArelated matters, and SSA-related litigation.

In an effort to support this claim Mr. Janangelo provided copies

of checks made out to J.P. Kemp, Esq. For example, Mr. Janangelo

provided a copy of a $500 check dated May 12, 2018. However, the memo

line on that check reads “Oral hearing – 6/11/2018.” There was never a

hearing related to Mrs. Janangelo’s disability claim because she never

made one.

Another check, this one dated September 26, 2018, was marked

“IRC Number 212, SCOTUS litigation costs.” The only Supreme Court

activity in the record was undertaken with respect to Mr. Janangelo’s

FOIA litigation. Despite this fact, Mr. Janangelo unreasonably insisted

that the check supported his claim for deductible legal services

attributable to SSA DCS. The mere fact that Mr. Janangelo may have

paid Mr. Kemp for legal work does not make the expense attributable to

SSA DCS.

Mr. Janangelo also provided a billing statement dated March 25,

2019, purporting to show that he had paid Kemp & Kemp Attorneys at

Law $14,500 for legal work in 2018. After being issued an IRS summons,

however, Mr. Kemp provided a corrected billing statement dated

September 28, 2021, showing that the amount Mr. Janangelo paid him

for legal services in 2018 was actually $4,500. At trial Mr. Kemp

clarified that the $14,500 reflected on the March 25, 2019, statement

was inaccurate. He had prepared the original statement relying on

figures provided to him by Mr. Janangelo rather than from his own

billing records. Mr. Kemp identified the discrepancy when he reviewed

his own records after receiving the summons.

Mr. Janangelo attempted to explain the $10,000 discrepancy by

saying that he paid Mr. Kemp so much money over the years that it did

not matter. But that is not how deductions work. § 446; see, e.g., Gregory

v. Commissioner, 149 T.C. 43, 46 (2017) (explaining that a cash method

taxpayer may deduct expenses only for the year the expenses are paid);

Treas. Reg. § 1.446-1(c)(1)(i). Mr. Janangelo argued that the IRS should

have been more flexible during his audits, explaining that his own audit

practice working for the IRS is to allow a deduction, even if claimed for

the wrong year. Mr. Janangelo’s practice as a revenue agent may be to

allow such deductions, but the Court’s role is to apply the law as written

to the facts put in evidence. The Janangelos find support in neither.

Further, Mr. Kemp’s legal practice does not include SSA

disability claims. Mr. Kemp testified under oath that, although he

maintained an ongoing attorney-client relationship with Mr. Janangelo,

he did not know what SSA DCS was. He also credibly testified that he

did not provide any legal services at all to Mrs. Janangelo or to SSA

DCS.

The Expenses

Necessary.

Were

Not

Reasonable,

Ordinary,

Even if all of the expenditures claimed for SSA DCS had been

properly documented, the expenses Mr. Janangelo claimed as part of the

Schedule C filed for 2018 were not reasonable, not ordinary, and not

necessary under the circumstances. For example, Mr. Janangelo

claimed 25% of his annual life and disability insurance policy cost on the

SSA DCS Schedule C. He argued that the deduction was an SSA DCS

expense because, if something had happened to him, his wife would have

had to hire alternate counsel to investigate her potential disability

claim. But that would be a benefit for Mrs. Janangelo, not for SSA DCS.

Mr. Janangelo provided no better explanation. 18

Similarly, Mr. Janangelo allocated 33% of his NTEU dues to SSA

DCS because, as he explained it, had the IRS denied his request to

represent his wife before the SSA, he would have filed a grievance

against IRS management and that grievance process would have been

facilitated by his membership in the union. We find this to be neither a

valid reason for the expense here nor a reasonable percentage.

Mr. Janangelo claimed that the Drake Tax software (the same

professional tax preparation software he also had a subscription for in

2016, 2019, 2020, and 2021) was necessary for SSA DCS so that he could

run projections for his wife about the tax impact of Social Security

Disability payments. The record does not suggest that any such

projections were run. He also told the IRS that his representation of Mrs.

Janangelo would not “concern any ‘tax matters.’”

18 Equally unsatisfactory was his explanation of how he arrived at the amount

to claim. He explained his calculation by saying that he “went for a reasonable

approximation of what [he] could allocate to a tax-deductible expense. . . . [taking] 25

percent of an expense that is in a gray area, partially personal, could be business. . . .

You take a reasonable percentage, everybody’s happy.” As previously noted, what Mr.

Janangelo may have allowed as a revenue agent is irrelevant.

Mr. Janangelo listed expenses related to travel for conferences on

the SSA DCS Schedule C. The trips included attendance at an IRS

conference in early August 2018. Mr. Janangelo argues that attendance

at conferences such as that one allowed him to earn CPE credits to keep

his professional licenses, which in turn would have allowed him to

represent his wife if she needed to file a disability claim. On this record,

we are not convinced. 19

SSA DCS Was Not an Activity Engaged In for Profit.

Mr. Janangelo’s expenses—even if they had been accurately

reported, adequately substantiated, and otherwise reasonable—would

still not be deductible because SSA DCS was not an activity engaged in

for profit. Mr. Janangelo declared, repeatedly, that SSA DCS “was a

business in full compliance with IRC# 162 and Treas. Reg. 1.183-2(a)

and (b).” Declaring that does not make it so.

Section 162(a) permits the deduction of ordinary and necessary

expenses incurred in carrying on a trade or business. Even if an activity

is not a fully fledged business, it might be an activity engaged in for

profit. If an activity is not engaged in for profit, deductions are limited.

Section 183(a) provides that, if an activity is not engaged in for profit,

“no deduction attributable to such activity shall be allowed,” except to

the extent of income from the activity as provided in section 183(b). See

also Treas. Reg. § 1.183-2(a). In pertinent part section 183(b) allows

those deductions that would have been allowable had the activity been

engaged in for profit only to the extent of gross income derived from the

activity (reduced by deductions attributable to the activity that are

allowable without regard to whether the activity was engaged in for

profit). SSA DCS had no real income, so it had nothing to offset.

An activity not engaged in for profit is “any activity other than

one with respect to which deductions are allowable for the taxable year

under section 162 or under paragraph (1) or (2) of section 212.” § 183(c).

Deductions are allowable under section 162 or under section 212(1)

or (2) if the taxpayer is engaged in the activity with the actual and

honest objective of making a profit. Dreicer v. Commissioner, 78 T.C.

642, 645 (1982), aff’d, 702 F.2d 1205 (D.C. Cir. 1983) (unpublished table

decision); Golanty v. Commissioner, 72 T.C. 411, 425–26 (1979), aff’d,

19 We direct Mr. Janangelo’s attention to Treasury Regulation § 1.212-1(f):

“Among expenditures not allowable as deductions under section 212 are the following:

. . . fees and expenses paid or incurred by physicians, dentists, accountants, and other

taxpayers for securing the right to practice their respective professions.”

647 F.2d 170 (9th Cir. 1981) (unpublished table decision). The profit

standard applicable to section 212 is the same as that applied to section

162. See Antonides v. Commissioner, 893 F.2d 656, 659 (4th Cir. 1990),

aff’g 91 T.C. 686 (1988); Allen v. Commissioner, 72 T.C. 28, 33 (1979).

Mr. Janangelo insists that “[t]here is no requirement under

federal tax law that in practicing law on behalf of [his] wife, [he] had to

earn a profit in the first year of business.” The taxpayer’s expectation of

making a profit need not be reasonable, but it must be bona fide.

Golanty, 72 T.C. at 425–26. Mr. Janangelo’s was neither. It appears that

his primary objective was to avoid paying the correct amount of tax.

The Tax Court and the U.S. Court of Appeals for the Ninth Circuit

have consistently held that a taxpayer must establish that he engaged

in an activity in good faith with the predominant, primary, or principal

objective and intent of realizing an economic profit, independent of tax

savings, in order to deduct expenses under section 162 or 212. 20 Wolf v.

Commissioner, 4 F.3d 709, 713 (9th Cir. 1993), aff’g T.C. Memo. 1991212; Indep. Elec. Supply, Inc. v. Commissioner, 781 F.2d 724, 726 (9th

Cir. 1986), aff’g Lahr v. Commissioner, T.C. Memo. 1984-472; Sherman

v. Commissioner, T.C. Memo. 2023-63, at *9, aff’d, No. 23-70161, 2025

U.S. App. LEXIS 12600 (9th Cir. May 23, 2025). The existence of the

requisite profit objective is a question of fact that must be decided on the

basis of the entire record. Commissioner v. Groetzinger, 480 U.S. 23, 35–

36 (1987); Treas. Reg. § 1.183-2(b). In resolving this factual question,

greater weight is given to objective facts than to a taxpayer’s statement

of intent. See Indep. Elec. Supply, Inc. v. Commissioner, 781 F.2d at 726;

Treas. Reg. § 1.183-2(a).

The regulations provide a nonexclusive list of factors to consider

in evaluating a taxpayer’s profit objective. Treas. Reg. § 1.183-2(b). The

complete set of factors is (1) the manner in which the taxpayer carried

on the activity, (2) the expertise of the taxpayer or his or her advisors,

(3) the time and effort spent by the taxpayer in carrying on the activity,

(4) the expectation that the assets used in the activity may appreciate

in value, (5) the success of the taxpayer in carrying on other similar or

dissimilar activities, (6) the taxpayer’s history of income or loss with

respect to the activity, (7) the amount of occasional profits earned, if any,

(8) the financial status of the taxpayer, and (9) whether elements of

personal pleasure or recreation were involved. Here, some of the factors

20 See § 7463(b); Rule 170; Golsen v. Commissioner, 54 T.C. 742, 757 (1970),

aff’d, 445 F.2d 985 (10th Cir. 1971).

do not apply or are neutral. No single factor or group of factors is

dispositive, and more weight may be given to some factors than others.

Golanty, 72 T.C. at 426; see also Surridge v. Commissioner, T.C. Memo.

1998-304, slip op. at 6 (noting that a profit objective does not turn on the

number of factors satisfied); Treas. Reg. § 1.183-2(b). We discuss a few

of the relevant factors below.

Mr. Janangelo spent 2.5 hours in 2018 working on SSA DCS and

none in any of the other years before us. The record makes clear that the

“activity” was reviewing a website and writing a short memo about it. If

this even occurred, 2.5 hours is not a significant amount of time or effort.

Even if we could treat the $812 check Mrs. Janangelo gave to Mr.

Janangelo as revenue, a deduction of $22,542 in expenses provides a

questionable income-to-expense ratio for an enterprise that could not

take other clients.

The timing of petitioner’s business expenses is similarly

questionable. Mr. Janangelo appears to have asked the IRS for

permission to represent his wife on or about September 12, 2018. The

engagement agreement was signed December 28, 2018. The client memo

was dated December 30, 2018. Despite a generous reading of a

maximum 3.5 months of operations, Mr. Janangelo claimed deductions

for expenses incurred throughout the year as “business expenses.”

It is worth noting again the similarities among Mr. Janangelo’s

claims for expenses in other years and his claimed SSA DCS expenses

for 2018. Those similarities provide additional support for respondent’s

argument that SSA DCS was not an activity engaged in for profit but

merely Mr. Janangelo’s attempt to reduce his taxable income after the

TCJA. The record before us does not support a different conclusion.

III.

The Age Discrimination Lawsuit Expenses for 2019, 2020, and

2021 Are Not Deductible.

Aside from the issues relating to substantiation that apply across

all of the expenses and all of the years at issue, Mr. Janangelo’s claims

that any of his 2019, 2020, or 2021 expenses are properly deductible as

related to his age discrimination lawsuit are without merit.

Most Expenses Appear Unconnected to the Lawsuit.

As a threshold matter, the record does not address how the

nonlegal expenses Mr. Janangelo claimed (CPE and conference travel,

bar and union dues, etc.) are related to his age discrimination lawsuit.

Similarly, neither his revenue agent position nor the Appeals officer role

he had applied for required that he be a CPA or an attorney. We can also

see that these expenses are the same types of expenses that he claimed

as deductions for each year in the record, but Mr. Janangelo never

attempted to explain any connection to the lawsuit.

Mr. Janangelo Received No Award.

The legal expenses themselves (attorney’s fees, court reporter

fees), even though arguably related to the lawsuit, are not deductible

either. Section 62 allows individual taxpayers certain deductions

against gross income to arrive at “Adjusted Gross Income.” § 62(a).

Included among these are deductions for costs involving discrimination

suits. § 62(a)(20). However, those deductions are available only for legal

expenses (attorney’s fees and costs) up to the amount includible in the

taxpayer’s gross income for the taxable year on account of a judgment or

settlement (whether by suit or agreement) resulting from such a claim.

Id. Mr. Janangelo’s case was resolved by motion for summary judgment

in the Government’s favor. There was no settlement, he received no

monetary award, and he did not get the promotion. Mr. Janangelo had

no amount awarded to him from which to deduct anything.

Despite his loss, and without pointing the Court to any supporting

authority, Mr. Janangelo claimed that the section 62(a)(20) limitation

did not apply to him. He based this claim on his allegation that he would

have won his case but for the “lies” told by the IRS during the related

depositions. This unsupported allegation does not change the result.

None of the expenses Mr. Janangelo reported as part of his age

discrimination suit are deductible.

IV.

Other Expense Deductions for 2019, 2020, and 2021

Section 212

Section 212 generally permits individuals to deduct ordinary and

necessary expenses paid or incurred during the taxable year for the

production of income. § 212(1). The taxpayer bears the burden of proving

that an expense was incurred for business, rather than personal

reasons. See, e.g., Walliser v. Commissioner, 72 T.C. 433, 437 (1979).

Petitioners claim they were entitled to deductions specifically pursuant

to section 212 for 2019, 2020, and 2021, but they failed to address how

those expenses might have been tied to the production of income. 21

For example, Mr. Janangelo claimed deductions for travel

expenses relating to attendance at conferences for CPE in 2019, 2020,

and 2021. The travel expenses typically included mileage, parking,

lodging, a registration fee, and meals. With respect to amounts deducted

for meals, Mr. Janangelo testified:

When you go to a tax conference to obtain CPE credits and

the tax conference is out of town, the general habit is that

people eat meals three times a day. That would be

“business,” though it’s not a business in a Schedule C sense.

It’s a 212 deduction.

We don’t see how his meals might be a section “212 deduction”

here, even if he had met the requirements for substantiating these types

of expenses. Mr. Janangelo acknowledged that he was not required by

his employer to attend these conferences for CPE. More importantly, the

IRS did not require that Mr. Janangelo be a licensed attorney or CPA,

and he was not permitted to perform outside work because of his

employment with the IRS. Mr. Janangelo never drew a legitimate

connection between his attendance at conferences and the production of

income.

Similarly, Mr. Janangelo claimed a deduction for the cost of

toiletries if he bought them while he was out of town:

When I’m out of town attending CPE, if I buy shaving

cream, hand sanitizer. . . . I consider those to be related to

my getting . . . CPE credits. I’m not going to drive home

from San Diego to pick up my toothpaste, as opposed to just

buying it in CVS.

Generally, personal items purchased while away from home are

still personal, and Mr. Janangelo directs us to no provision permitting

deductions for them. See § 262(a) (establishing that, except as

specifically provided elsewhere in the Code, personal expenses are not

deductible); § 213 (explaining that deductions for medical care are

limited to an amount exceeding a percentage of gross income); Treas.

21 Nor did petitioners ever address how the TCJA’s suspension of miscellaneous

itemized deductions for 2019, 2020, or 2021 would have limited their ability to properly

claim deductions for these expenses.

Reg. § 1.213-1(e)(2) (disallowing deductions for toothpaste, shaving

cream, and similar toiletries as medical expenses); see also Fred W.

Amend Co. v. Commissioner, 55 T.C. 320, 325–26 (1970) (explaining that

some expenditures are so “inherently personal” that they are not

deductible), aff’d, 454 F.2d 399 (7th Cir. 1971). Kenneling the

Janangelos’ dogs likewise is a personal expense, not a business one.

Petitioners did not provide an explanation that would lead us to

determine otherwise.

HSA Deduction

Petitioners claimed an $8,998 deduction from their 2019 income,

identifying it as a “disagreed amt. – re: IRC# 223(c)[sic](2)”. This

deduction was not reported on Form 8889, Health Savings Accounts

(HSAs). Instead, it was listed with their section 162 deductions on one

of the “workschedules.” Mr. Janangelo claims that the deduction was

permitted pursuant to section 223(c) and section 212. Neither supports

his argument.

Section 223(c)(1)(A) provides that to have a deductible

contribution to an HSA, the taxpayer must be an “eligible individual,”

meaning someone enrolled in a “high deductible health plan” (HDHP)

and not covered by a health plan that is not a disqualifying health plan,

or a non-HDHP. § 223(c)(1)(A), (2)(A) (discussing what qualifies as an

HDHP). The Janangelos were covered by a disqualifying plan in 2019,

the APWUHP. And, as the HSA collection action had already made

clear, the plan that the Janangelos were enrolled in “does not include

HDHPs.”

Mr. Janangelo insists that section 223(c)(2) permits the deduction

regardless, arguing that “under the per se HSA rules, it wouldn’t have

qualified, but it qualified as an exception.” Mr. Janangelo claimed at

trial that the “exception” was that his HSA amount was deductible

pursuant to section 212. We fail to see how section 212 would apply.

Moreover, even if he had not understood the difference between a

high option plan and a high deductible plan at the time he filed

petitioners’ 2019 tax return, Mr. Janangelo was well aware of the

difference by the time of trial because the trial took place after his HSA

collection action had been decided. He continued to make the argument

anyway.

Penalties

Respondent determined penalties against both Janangelos in

each of the Notices of Deficiency. As discussed more fully below, we find

Mr. Janangelo liable for the civil fraud penalty. Mrs. Janangelo,

however, had reasonable cause for signing the returns that Mr.

Janangelo prepared, and we find that she is not liable for the accuracyrelated penalties determined against her related to her husband’s

activities.

Burden of Production

The Commissioner bears the burden of production with respect to

an individual taxpayer’s liability for any penalty, requiring the

Commissioner to come forward with sufficient evidence indicating that

the imposition of the penalty is appropriate. See § 7491(c); Higbee v.

Commissioner, 116 T.C. 438, 446–47 (2001).

It is clear from the record and the parties’ Stipulation that the

initial determination of penalties was timely approved as required

under section 6751(b).

Civil Fraud Penalties

The Notices of Deficiency determined a fraud penalty pursuant to

section 6663 against Mr. Janangelo for each of the years at issue. It is

no longer an issue for resolution with respect to Mrs. Janangelo. See also

§ 6663(c).

Section 6663 Generally

Section 6663(a) imposes a penalty of 75% of the portion of any

underpayment of tax required to be shown on a return that is

attributable to fraud. Fraud is never imputed or presumed. See Parks v.

Commissioner, 94 T.C. 654, 660 (1990). Rather, “[t]he existence of fraud

is a question of fact to be resolved upon consideration of the entire

record.” Petzoldt v. Commissioner, 92 T.C. 661, 699 (1989). The

Commissioner bears the burden of proof by clear and convincing

evidence. § 7454(a); Rule 142(b); see Petzoldt, 92 T.C. at 699; Castillo v.

Commissioner, 84 T.C. 405, 408 (1985).

Disagreeing with the IRS does not, by itself, equate to fraud.

Rather, fraud is an intentional wrongdoing on the part of the taxpayer

with the specific purpose of evading a tax believed to be owing. Bradford

v. Commissioner, 796 F.2d 303, 307 (9th Cir. 1986), aff’g T.C. Memo.

1984-601; Edelson v. Commissioner, 829 F.2d 828, 833 (9th Cir. 1987),

aff’g T.C. Memo. 1986-223; Petzoldt, 92 T.C. at 698. To establish fraud,

the Commissioner must prove that (1) an underpayment of tax exists for

the relevant year and (2) the taxpayer “intended to evade taxes known

to be owing by conduct intended to conceal, mislead, or otherwise

prevent the collection of taxes.” DiLeo v. Commissioner, 96 T.C. 858, 874

(1991), aff’d, 959 F.2d 16 (2d Cir. 1992); see also Langille v.

Commissioner, 447 F. App’x 130, 134 (11th Cir. 2011), aff’g T.C. Memo.

2010-49.

To sustain his burden, the Commissioner need not prove the

precise amount of any deficiency attributable to fraud, but only that a

part of the deficiency is attributable to fraud. § 6663(b); see Estate of

Beck v. Commissioner, 56 T.C. 297, 362 (1971). We have already

determined that underpayments exist. Therefore, the Court must now

determine whether any portion of any underpayment is attributable to

fraudulent intent. See DiLeo, 96 T.C. at 872.

Because direct evidence of a taxpayer’s intent is rarely available,

fraudulent intent may be established by circumstantial evidence, and

reasonable inferences may be drawn from the relevant facts. See

Bradford v. Commissioner, 796 F.2d at 307. The taxpayer’s entire course

of conduct may be examined to establish the requisite intent. See

Niedringhaus v. Commissioner, 99 T.C. 202, 210 (1992); Stone v.

Commissioner, 56 T.C. 213, 224 (1971); Otsuki v. Commissioner, 53 T.C.

96, 106 (1969); Romer v. Commissioner, T.C. Memo. 2001-168, slip op.

at 44.

Courts usually rely on several nonexclusive indicia or “badges” of

fraud to find circumstantial evidence of fraud. See Niedringhaus, 99 T.C.

at 211; DiLeo, 96 T.C. at 875. These badges of fraud include, as

potentially relevant here, understating income; failing to maintain

adequate records; offering implausible or inconsistent explanations of

behavior; failing to cooperate with tax authorities; offering false

testimony or testimony that lacks credibility; and filing false documents.

See Vanover v. Commissioner, T.C. Memo. 2012-79, slip op. at 11; see

also Bradford v. Commissioner, 796 F.2d at 307; Recklitis v.

Commissioner, 91 T.C. 874, 910 (1988). The existence of any one badge

is not dispositive, but the existence of several badges may be persuasive

circumstantial evidence of fraud. Niedringhaus, 99 T.C. at 211.

If the Commissioner establishes that any portion of an

underpayment is attributable to fraud, then the entire underpayment is

treated as due to fraud unless the taxpayer can establish by a

preponderance of the evidence that some portion of it is not attributable

to fraud. § 6663(b); see Estate of Beck, 56 T.C. at 362. In addition, no

fraud penalty may be imposed with respect to any portion of an

underpayment if it is shown that there was a reasonable cause for such

portion and that the taxpayer acted in good faith with respect to such

portion. § 6664(c)(1).

Fraud Analysis

Respondent argues that Mr. Janangelo’s fraudulent intent is

evident on the record before us, and we agree. The Court does not impose

a fraud penalty lightly. In fact, we often decide against its application.

See, e.g., Di Ricco v. Commissioner, T.C. Memo. 2009-300, slip op. at 9

(finding that the Commissioner did not establish fraudulent intent by

clear and convincing evidence); Carter v. Commissioner, T.C. Memo.

2003-235, slip op. at 4 (relying on the taxpayer’s having affirmatively

established that he was negligent in his recordkeeping and therefore

lacked the requisite intent to defraud). Here, however, its application is

clear. Mr. Janangelo did not “utilize the advantages of the tax law” as

he alleges; he intentionally and improperly attempted to reduce his

taxable income by claiming deductions to which he knew he was not

entitled and submitted documents that he knew were not accurate,

thereby engaging in fraud on the tax system.

The first indicium of fraud, understatement of income, can be

shown by an overstatement of deductions. See, e.g., Hicks Co. v.

Commissioner, 56 T.C. 982, 1019 (1971), aff’d, 470 F.2d 87 (1st Cir.

1972). Although mere underreporting of income is insufficient to support

a finding of fraud, “repeated understatements in successive years when

coupled with other circumstances showing an intent to conceal or

misstate taxable income present a basis on which the Tax Court may

properly infer fraud.” Furnish v. Commissioner, 262 F.2d 727, 728–29

(9th Cir. 1958), aff’g in part, remanding in part Funk v. Commissioner,

29 T.C. 279 (1957). Mr. Janangelo overstated deductions for each year

at issue, and we have already found that respondent has clearly and

convincingly demonstrated that an underpayment of tax exists for each

of those years.

Taxpayers must maintain records sufficient for the Commissioner

to determine their tax liabilities. Failing “to keep or produce adequate

records to support . . . tax return positions” can be an indicator of fraud.

See Scott v. Commissioner, T.C. Memo. 2012-65, slip op. at 32. See

generally § 6001. The Janangelos failed to present adequate records to

support the deductions claimed on their tax returns for the years at

issue. Given Mr. Janangelo’s audit background, this factor is indicative

of fraud.

A taxpayer’s implausible or inconsistent explanations for his

actions may also constitute circumstantial evidence of fraudulent intent.

See Di Giorgio v. Commissioner, T.C. Memo. 2023-44, at *25; Vanover v.

Commissioner, T.C. Memo. 2012-79, slip op. at 22. Mr. Janangelo

misreported petitioners’ income for every year at issue through the use

of deductions he was expressly not entitled to under any theory

presented. His explanations, when he provided them, were at best

merely wrong. For the most part, they were not remotely credible. Mr.

Janangelo’s misapplication of the tax laws cannot be fairly read as

anything other than intentional.

Mr. Janangelo provided false documents to the IRS and to the

Court. See Stephenson v. Commissioner, 79 T.C. 995, 1007 (1982)

(explaining that filing false documents is another factor that supports a

finding of fraudulent intent), aff’d per curiam, 748 F.2d 331 (6th Cir.

1984). He created a sham “business” for 2018 to try to get around

changes to the tax laws that went into effect that year. He blatantly

disregarded facts and the Code for 2019, 2020, and 2021 in an effort to

claim deductions from gross income to which he was not entitled, and he

did so without reason, legal support, or plausible explanation.

He failed to cooperate with the IRS. He was combative and hostile

with IRS representatives during both the audits and the Court

proceedings.

We consider all of these factors in light of Mr. Janangelo’s

particular background. “A taxpayer’s intelligence, education, and tax

expertise are relevant in determining fraudulent intent.” Cole v.

Commissioner, T.C. Memo. 2010-31, slip op. at 21 (citing Stephenson, 79

T.C. at 1006), aff’d, 637 F.3d 767 (7th Cir. 2011); see also Niedringhaus,

99 T.C. at 211. Mr. Janangelo is a tax professional. He is a licensed

attorney, a certified public accountant, and (for many years) an

employee of the IRS. 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. It is clear that he is

liable for the fraud penalty for each year at issue.

Although section 6664(c)(1) provides that no penalty will be

imposed under section 6663 with respect to any portion of an

underpayment for which it is shown that there was a reasonable cause

and that the taxpayer acted in good faith, this record does not suggest

that Mr. Janangelo operated with either for any portions of the

underpayments.

Section 6662 Negligence Penalty

Section 6662(a) imposes a 20% accuracy-related penalty on an

underpayment of tax required to be shown on a return. This penalty

applies to underpayments attributable, among other reasons, to

“[n]egligence or disregard of rules or regulations” and “[a]ny substantial

understatement of income tax.” § 6662(b)(1) and (2). Section

6662(d)(2)(A) generally defines “understatement” as the excess of the

tax required to be shown on the return over the amount shown on the

return as filed. An understatement of income tax is “substantial” if it

exceeds the greater of $5,000 or 10% of the tax required to be shown on

the return. See § 6662(d)(1)(A).

Negligence “includes any failure to make a reasonable attempt to

comply with the provisions of the internal revenue laws or to exercise

ordinary and reasonable care in the preparation of a tax return.” Treas.

Reg. § 1.6662-3(b)(1). Negligence also includes any failure to

substantiate items properly. Id. It is clear that petitioners were

negligent in their tax filing for each year before us. And, in the years for

which the section 6662(d) penalty was determined (i.e., 2018, 2019, and

2021), their understatements of income tax were “substantial.”

A section 6662(a) penalty was determined against Mr. Janangelo

for each year as an alternative to the fraud penalty. For the reasons set

forth above, the negligence penalty would ordinarily apply. But we have

already held that Mr. Janangelo is liable for the section 6663 fraud

penalty; thus no section 6662(a) penalty applies. See § 6662(b). 22

22 To the extent the Janangelos argue that the “workschedules” provided with

their returns adequately disclosed Mr. Janangelo’s positions so as to avoid the penalty

had it been applicable, we note that any disclosures were improperly made and lacked

a reasonable basis. See Treas. Reg. §§ 1.6662-3(c), 1.6662-7.

Whether Mrs. Janangelo is liable for penalties under section 6662(a) for

any of the years at issue remains before us.

Penalties under section 6662 will not be imposed if any portion of

an underpayment is attributable to a taxpayer’s reasonable cause and

good faith attempt to comply with his tax obligations. See § 6664(c)(1).

“The determination of whether a taxpayer acted with reasonable cause

and in good faith is made on a case-by-case basis, taking into account all

pertinent facts and circumstances.” Treas. Reg. § 1.6664-4(b)(1). Mrs.

Janangelo bears the burden of proof regarding any reasonable cause

defense. See Rule 142(a)(1); Higbee, 116 T.C. at 448–49.

One possible ground for claiming “reasonable cause” is reliance

on professional advice. Treas. Reg. § 1.6664-4(b)(1). Reliance on the

advice of a tax professional may establish a defense of reasonable cause

and good faith, but only if (1) the adviser was a competent professional

who had sufficient expertise to justify reliance; (2) the taxpayer provided

necessary and accurate information to the adviser; and (3) the taxpayer

actually relied in good faith on the adviser’s judgment. See Neonatology

Assocs., P.A., 115 T.C. at 99.

Mrs. Janangelo testified that she routinely had her returns

professionally prepared, even before she married Mr. Janangelo.

Although Mr. Janangelo displayed (both to us and to respondent) ample

bad faith and an intent to avoid tax, it was reasonable for Mrs.

Janangelo under the circumstances to rely on what her husband, a tax

professional who was employed by the IRS, told her in preparing and

filing their returns. Her reliance on him for the years before us is

especially reasonable in light of the fact that all of the deductions at

issue relate to Mr. Janangelo, his alleged business, and his litigation.

Therefore, we find that Mrs. Janangelo acted with reasonable cause in

relying on Mr. Janangelo to prepare their joint returns.

Correspondingly, we find that she is not liable for penalties under

section 6662(a) for any year before us.

Conclusion

To the extent the Janangelos presented arguments not addressed

above, we find them to be irrelevant, moot, or without merit.

To reflect the foregoing,

Decisions will be entered for respondent as to the deficiencies; for

respondent as to the imposition of the section 6663 fraud penalty against

Mr. Janangelo for each year at issue; and for Mrs. Janangelo as to the

section 6662(a) penalties determined against her.

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.