Blog · 15 October 2026

Attorney Fee Deduction Under §62(a)(20) After Janangelo: Discrimination Awards, the Includible-Income Cap and What US CPA Firms Should Check

By Keshav Bansal, CA

An attorney fee deduction under IRC §62(a)(20) is above-the-line—but only up to the judgment or settlement income included that year. In Janangelo v. Commissioner, T.C. Summary Opinion 2026-8 (filed August 27, 2026; Special Trial Judge Siegel), the Tax Court rejected age-discrimination legal expenses because the taxpayer lost on summary judgment and recovered nothing. For US CPA firms, the practical rule is simple: $0 includible award → $0 §62(a)(20) deduction. The same opinion also sustained §6663 civil fraud penalties against a sophisticated IRS revenue agent and spared his wife under §6664(c)—useful context, not the main planning lesson. (Small-tax-case opinions are nonprecedential under §7463(b).)

What §62(a)(20) actually allows

Under IRC §62(a)(20), a taxpayer may take an above-the-line deduction for attorney fees and court costs paid by or on behalf of the taxpayer in connection with a claim of unlawful discrimination (defined in §62(e)—including Age Discrimination in Employment Act claims and many other employment and civil-rights statutes), certain false-claims / Medicare secondary-payer actions, and related matters listed in the statute. The Code’s next sentence is the cap: the deduction shall not apply to any deduction in excess of the amount includible in the taxpayer’s gross income for the taxable year on account of a judgment or settlement (lump sum or periodic) resulting from that claim.

Congress added the provision in the American Jobs Creation Act of 2004 so discrimination recoveries would not push taxpayers into AMT solely because legal fees were stuck as miscellaneous itemized deductions. IRS Information Letter INFO 2008-0041 summarizes that history. A separate rule, §62(a)(21), covers attorney fees tied to certain whistleblower awards (including IRC §7623(b) and, for years after 2017, specified SEC, state false-claims, and Commodity Exchange Act awards)—again capped at the includible award. See also our note on whistleblower reward schemes for the broader awards landscape.

What Janangelo held on the discrimination fees

Per Freeman Law’s Tax Court in Brief (summarizing the opinion) and Liskow & Lewis (Sept. 4, 2026), Peter J. Janangelo, Jr.—a nearly-twenty-year IRS revenue agent who is also a New York attorney and a CPA licensed in New York and Nevada—prepared the couple’s 2018–2021 joint returns. For 2019–2021 he claimed above-the-line and §212-style amounts tied to an age-discrimination lawsuit against the IRS, including attorney’s fees, travel, and other costs. The court held the lawsuit ended in summary judgment for the government: there was no settlement, no monetary award, and no promotion. With nothing includible in gross income from the claim, §62(a)(20)’s cap left no amount from which to deduct.

That holding tracks the statute’s plain text. Losing (or settling for non-taxable relief only) is not a drafting quirk—it zeroes the above-the-line fee deduction for that year. Personal legal fees that do not fit §62(a)(20) or another specific Code path generally do not become deductible Schedule A miscellaneous itemized deductions while those deductions remain suspended under §67(g) for the years at issue (Freeman notes §67(g) suspended miscellaneous itemized deductions for taxable years beginning after December 31, 2017, and before January 1, 2026; confirm current-year treatment before advising on 2026+ returns).

The rest of the case (context, not the lead)

Freeman Law reports the IRS determined deficiencies totaling $34,344 and §6663 fraud penalties of $25,759 for 2018–2021, and the court sustained those amounts against Mr. Janangelo. Liskow & Lewis describes the 2018 Schedule C activity styled “SSA DCS” as reporting $812 in receipts against $23,354 in expenses—found to be a sham created after miscellaneous itemized deductions were suspended, so tax software, CPE, and dues could keep flowing as business expenses. The court also found multiple badges of fraud and treated his tax sophistication as weighing toward intent.

Mrs. Janangelo, a retired registered nurse, was not liable for the §6662 accuracy-related penalties determined against her: the court found reasonable cause under §6664(c)(1) for relying on her husband, a tax professional, to prepare the joint returns. Contrast that outcome with cases where the IRS fails to prove fraud at all—see our guide to the civil fraud penalty and statute of limitations after Mitchell—and with ordinary 20%/40% accuracy-related analysis in our Clear Sky §6662 guide. Do not treat Janangelo as rewriting Mitchell; the §62(a)(20) cap is the takeaway for fee planning.

Checklist for US CPA firms

• Match fees to includible income by year. Sketch the settlement or judgment allocation (taxable wages, §104 damages, interest, fees paid to counsel) before claiming §62(a)(20). Contingent fees paid from a taxable award still need the income-inclusion side of the equation.
• $0 recovery year → expect $0 above-the-line deduction. Summary judgment losses, injunctions-only results, and years with no settlement cash usually fail the statutory cap—even if the claim itself is “unlawful discrimination” under §62(e).
• Separate §62(a)(20) from §62(a)(21). Discrimination/employment claims and whistleblower awards use different paragraphs; do not assume one covers the other.
• Do not re-label personal fees as Schedule C. Janangelo illustrates how a paper “business” built to host suspended misc. itemized items can invite fraud scrutiny when the facts do not support a real trade or business.
• Document spouse reliance carefully. Reasonable cause for the non-preparing spouse turned on competence, good-faith reliance, and who generated the disputed positions—not on §6015 alone in this opinion.
• Remember §7463(b). Summary opinions are persuasive illustrations, not binding precedent; confirm the current Code and any Circuit authority before a client position.

Where Tax Brew fits

Discrimination and whistleblower settlements generate messy workpapers: Form 1099-MISC/NEC reporting, fee statements, year-of-inclusion schedules, and amended-return trails. Tax Brew provides bookkeeping, cleanup and tax prep support for US CPA firms; your team keeps the advice and sign-off. See our services, or email info@taxbrewglobal.com.

Sources: Freeman Law — Janangelo v. Comm’r Tax Court in Brief; Liskow & Lewis (Sept. 4, 2026); Leagle — Janangelo, T.C. Summary Opinion 2026-8; IRC §62(a)(20)–(21), (e) (Cornell LII); IRS INFO 2008-0041. General information, not tax or legal advice. Summary opinions are nonprecedential under §7463(b).