I committed to wrapping up August and I am following through. I think I will be experimenting with a different approach in the coming month. I will try to give more developments at least a fuller treatment. I will tell you about the ones, that didn’t quite qualify periodically. Also, for a limited time, I will do a full treatment on any requests that I get in the comments section of this site. OK ? So here is the rest of August.
The Influencer
Suleiman Sami v. Comm. (TCM 2026-69) came from Judge Copeland on August 18, 2026 and got quite a bit of coverage. The story actually broke out of the tax ghetto with this paywalled piece by MIchael McCann in Sportico. That is pretty rare. One I noted early in my writing career concerned a TV anchor woman who wanted to deduct her on-air clothes. The hook that caused the excitement was that she included her underwear in her list of deductible items. Another example was artist Susan Crile’s hobby loss case. In the tax world, Kelly Erb, now back as Tax Girl, covered the case as did Lew Taishoff among others of less note.
Mr. Sami was facing $156,660 in tax and accuracy penalties for the years 2019, 2020 and 2021. Mr. Sami has an accounting degree and worked for a while at, the envelope please, PWC. During the years at issue he worked for JetBlue in the IT department. He also had an LLC called S Sami Services LLC which had three components: transportation, event ticket sales and social media influencing.
The case was all about expenses none of which had been well documented. Judge Copeland was able to use Cohan to help him with some of them. For example, he carved back his car expenses by 20% for the inexactitude of his own making. When it came to contract labor the judge could come up with no basis to judge the something that he admitted might be there.
The big dollars were expenses for attending events where he got to meet celebrities.
“In tax years 2019, 2020, and 2021 (years at issue) he paid large sums for exclusive experiences––including, for example, a trip to the Grammys, attending the Emmys, and meet-and-greets with Matt Damon, Benedict Cumberbatch, Mark Ruffalo, and other celebrities.”
This was for the influencer arm of the business which generated no revenue in the years at issue. Many of the events were charity sponsored so he alternatively claimed them as charitable deductions. The judge did not allow any of them.
This is somewhat reminiscent of the decision in the case of Joshua Pingel although that was a hobby loss case. Pingel was, I believe, the first blogger to show up in Tax Court. He was a travel blogger who spent quite a bit of money traveling and did not generate much revenue. That opinion was in 2015 and concerned a 2008 return. We didn’t get TikTok till 2017.
Classic Alternative Tax Thinker
God bless people like Adolfo Sandor Montero. Once they latch onto their belief about the income tax not being applicable to them nothing can shake them loose. Montero was at the Fifth Circuit complaining about the Tax Court’s $25,000 frivolity penalty. The circuit judges note that it is hardly his first rodeo.
“Montero has quite a history of appearances before this court. See id. (affirming imposition of penalty and sanctions for Montero’s 2003 and 2004 tax returns); Montero v. Comm’r, No. 24-60190, 2024 WL 4491604, at *1 (5th Cir. Oct. 15, 2024) (per curiam) (affirming imposition of penalty and sanctions for Montero’s 2017 tax return), cert. denied, 145 S. Ct. 1964 (2025); Montero v. Comm’r, No. 24-60302, 2024 WL 5105532, at *1 (5th Cir. Dec. 9, 2024) (per curiam), cert. denied, 146 S. Ct. 180 (2025); Montero v. Comm’r, No. 26-60167, 2026 WL 1679030, at *1 (5th Cir. June 10, 2026) (per curiam) (affirming imposition of penalty and sanctions for Montero’s 2020 tax return).
He reurges the same arguments he has previously pressed—that he did not file a frivolous tax return because his wages from a private employer are not subject to income tax. He argues that the IRS has “offered no evidence that Dell payments were connected to the federally privileged activity of “working for or doing business with the United States.”
This is really a classic argument. I should note that until recently courts and IRS were misstating the holding in Brushaber, which I explained here. At any rate the argument is that the income tax is indirect meaning that it has to be an excise and an excise can’t be on everything that comes in. It has to be some sort of privilege. The most prominent current proponent of the theory is Peter Hendrickson. His proof that it works is on his Lost Horizons website in the form of copies of refund checks people send in.
A Cautionary Tale
The Ninth Circuit upheld the 2024 Tax Court decision in the case of James J. Maggard and Szu-Yi Chang. Maggard was arguing that other shareholders in S Corporation voided the S election by taking disproportionate distributions. The Tax Court had acknowledged the problem but could offer no relief.
“We recognize that this can create a serious problem for a taxpayer who winds up on the hook for taxes owed on an S corporation’s income without actually receiving his just share of its distributions. This is especially problematic when the taxpayer relies on the S corporation distributions to pay these taxes. Worse yet is when a shareholder fails to receive information from the corporation that he needs to accurately report his income.
This is what happened to Maggard.”
A similar story of this happened to blog editor Nik Richie in the context of a partnership.
A Hobby Loss Opinion With A Lot More Going On
There was a lot going on in TCM 2026-76 Frank L. Chapin, Deceased and Sydney L. Gutierrez-Chapin et al issued August 27, 2026. There were deficiencies totaling $1,131,640 for years 2009, 2010. 2011 and 2012 and nearly another million for unfiled returns for 2013 and 2014. Never mind the penalties.
Mr. Chapin had an accounting practice providing tax returns and other services. He prepared over 200 returns a year. Mrs. Chapin had an antique business. There was property where ranching/horse breeding went on and a staffing agency the co-owned with their daughter.
There were a lot of problems with unreported income and unsubstantiated deductions. Judge Vasquez went both ways as he sorted through them. It defies easy summary.
Regardless what I found most interesting was the 183 (hobby loss) issue buried in there. That was a win for the taxpayers:
“Petitioners pursued horse breeding as a business rather than a hobby and have established, by a preponderance of the evidence, that their primary objective was to make a profit. Petitioners devoted substantial time and effort to horse breeding. See Treas. Reg. § 1.183-2(b)(3). They performed all aspects of the work themselves including maintaining the property, feeding and training the horses, and providing routine veterinary care. The work was physically demanding and both sustained injuries from the horses. Horse breeding was arduous daily work for petitioners, far from a leisure pursuit.”
I particularly cherish the closing to that section, some of which I have highlighted:
“We agree that petitioners’ recordkeeping left something to be desired; we do not, however, find that this defect negates petitioners’ profit motive. Petitioners’ approach may have been informal, but we are satisfied that they approached horse breeding in a businesslike manner. See id. subpara. (1).
Section 183 does not require that taxpayers operate their ventures with perfect business acumen. Petitioners’ persistence in the face of hardship may reflect unusual business judgment, but it does not belie an honest profit motive, which we find petitioners to have established. See Huff v. Commissioner, T.C. Memo. 2021-140,”
I covered the Huff opinion in 2022 with Tax Court Christmas Donkeys – A Present For Taxpayers With Losing Side Gigs.
Good For The Gander
Peter J Janangelo and Mary Ann Janangelo – TCS 2026-8 – is above average interesting for a Summary opinion. Special Trial Judge Siegel puts it this way:
“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.”
Other Peter J has been involved with litigation with IRS about his employment there which adds a little more color to the story.
There were deficiencies totaling $34,344 for the years 2018-2021 and IRS was asserting the fraud penalty (75%). Peter J argued that IRS was picking on him because of other litigation. Basically in the olden days before the Tax Cuts And Jobs Act of 2017 he had been claiming a lot of miscellaneous itemized deduction. His IRS auditing job does not require professional credentials but he maintains them anyway both lawyer and CPA.
In 2018 he had a purported business of representing his wife on a social security disability claim. In the later years he claimed expense as related to his age discrimination claim. Regardless of issues of substantiation they were not deductible since he lost the case and hence had no gross income.
Ed Zollars with “Professional Sophistication and the Civil Fraud Penalty: How an IRS Auditor’s Own Expertise Sealed His Fate in Tax Court in Current Federal Tax Developments frames the story as a cautionary tale:
..the United States Tax Court delivered a stark reminder that professional tax expertise can be a double-edged sword. Rather than shielding a taxpayer from scrutiny, professional sophistication can serve as the primary catalyst for proving fraudulent intent.
I will not argue with that. I do see something else, though.
Assertion of the 75% fraud penalty is rather rare. I’m not saying other Peter J doesn’t deserve the fraud penalty just that there might have been some animus behind the assertion of it. My first sort of accounting job was as a hotel night auditor and there were these late night sessions in the closed coffee shop where the hotel employees were supplemented by local cops. They had the more interesting stories. One of the “crimes” they mentioned was B and A which stood for “being an asshole”. That is what got you arrested. They could figure out the statute later. This case smells a bit of that phenomenon. Just saying.
Also it may be possible that the Tax Court sustaining the fraud penalty might justify termination of his employment with the IRS.
Different Countries Same Result – No Foreign Tax Credit For Net Investment Income Tax
The Appeals Court for the Federal Circuit reversed the Court of Claims on two cases Estate of Bruyea v US and Christensen v US. They concerned foreign tax credits from Canada and France respectively. The foreign tax credit does not apply to NII. I gave you the links if you want to check the somber reasoning.
We’re Done
That’s it for August and I am just a little beyond my deadline. Still it is unsatisfactory and I will be taking a new approach or actually an old approach. Now when I look at a case, I will decide if it is post worthy and if it is dive right in. I am also thinking that I may not go down as many rabbit holes. That is how I did things when I first started blogging in 2009 and I seemed to get a lot more done even though I still had a day job. Back then I would group some of the sort of interesting things into a cleanup post every once in a while. Here is one from 2010. I am open to suggestions and the best place for them is the comments section of this blog.
