The United States Tax Court recently issued a reminder that tax sophistication can support a finding of civil fraud. In Janangelo v. Commissioner, T.C. Summary Opinion 2026-8, the court found that a longtime IRS revenue agent, who is also a licensed attorney and CPA, committed civil fraud by claiming a series of fabricated and unsubstantiated deductions across four consecutive tax years.
Peter J. Janangelo, Jr. worked as an IRS revenue agent for nearly two decades while also holding an active law license in New York and CPA licenses in New York and Nevada. He and his wife, Mary Ann Janangelo, jointly filed returns for 2018 through 2021 claiming a range of deductions tied almost entirely to Mr. Janangelo’s activities. The IRS disallowed the deductions in full, and Mr. Janangelo challenged the resulting deficiencies along with proposed fraud and negligence penalties.
The largest issue involved a purported Schedule C business, styled “SSA DCS,” that Mr. Janangelo claimed to have formed in late 2018 to represent his wife in a potential Social Security disability claim. The business reported just $812 in gross receipts against $23,354 in claimed expenses. The court found the arrangement to be a sham created shortly after the Tax Cuts and Jobs Act suspended miscellaneous itemized deductions, allowing Mr. Janangelo to continue deducting the same recurring expenses, such as tax software, continuing education, and professional dues, that he had claimed in prior years. The court noted that the supposed retainer payment from his wife was, in substance, indistinguishable from her ordinary contribution to household expenses, and that the attorney Mr. Janangelo claimed to have paid for related legal work testified he had never heard of the business and performed no such work.
For 2019 through 2021, Mr. Janangelo attempted to deduct tens of thousands of dollars in expenses he attributed to an age discrimination lawsuit against the IRS, including attorney’s fees, travel, and even pet kenneling costs. The court rejected these deductions outright because the lawsuit ended in summary judgment against him, meaning he received no settlement or award against which any legal fees could be deducted under I.R.C. § 62(a)(20). The court also rejected a claimed health savings account related deduction, since the Janangelos were never enrolled in a qualifying high deductible health plan.
Applying the clear and convincing evidence standard, the court found multiple badges of fraud, including overstated deductions across every year at issue, inadequate recordkeeping, implausible explanations, and submission of inaccurate documentation. The court gave particular weight to Mr. Janangelo’s professional background, reasoning that his expertise as a trained tax professional made his conduct especially deliberate rather than mistaken. As a result, the court sustained the 75 percent civil fraud penalty under I.R.C. § 6663 against Mr. Janangelo for each year. Mrs. Janangelo, however, was found to have reasonably relied on her husband, a tax professional, in preparing and signing the couple’s joint returns, and the court declined to impose any accuracy-related penalty against her.
Although issued as a small tax case opinion that carries no precedential value under I.R.C. § 7463(b), the decision underscores the weight the Tax Court gives to a taxpayer’s professional background when evaluating fraudulent intent, and offers a cautionary illustration of how not to structure family tax planning. For more information about this update, contact Liskow attorneys Leon Rittenberg III, Caroline Lafourcade, and Kevin Naccari, and visit Liskow’s Tax Practice page.