                        T.C. Memo. 2011-35



                      UNITED STATES TAX COURT



              PATRICK MICHAEL MOONEY, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 8128-09.               Filed February 7, 2011.



     Patrick Michael Mooney, pro se.

     Matthew S. Reddington, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     WELLS, Judge:   Respondent determined a deficiency in

petitioner’s 2005 Federal income tax of $3,614 and additions to

tax pursuant to sections 6651(a)(2) and (f) and 6654 of $524.03,
                                   - 2 -

$2,620.15, and $144.97, respectively.1        The issues we must decide

are:       (1) Whether petitioner is liable for a deficiency in income

tax; (2) whether petitioner is liable for a failure to timely pay

addition to tax pursuant to section 6651(a)(2); (3) whether

petitioner is liable for a failure to pay estimated income tax

addition to tax pursuant to section 6654; (4) whether petitioner

is liable for an addition to tax for fraudulent failure to file

pursuant to section 6651(f); and (5) whether petitioner is liable

for a penalty pursuant to section 6673.

                             FINDINGS OF FACT

       Some of the facts and certain exhibits have been stipulated.

The parties’ stipulations of fact are incorporated in this

opinion by reference and are found accordingly.         At the time he

filed his petition, petitioner resided in Virginia.

       Petitioner holds a bachelor’s degree in political science

from Loyola University in New Orleans, Louisiana, and was

previously a high school educator.         Before 2004 petitioner had

filed income tax returns since his time in college.

       Petitioner operates his own Web site www.unlearning.org, on

which he has published, among other things, an editorial entitled

“Unlearning Pays! Hendrickson, Mooney & Others Bring IRS to



       1
      All section references are to the Internal Revenue Code
(Code) in effect for the year in issue, and all Rule references
are to the Tax Court Rules of Practice and Procedure, unless
otherwise indicated.
                                - 3 -

Heel.”    In that editorial, he wrote:    “[A] private sector

worker’s earnings are not legally subject to the federal tax on

income.    They never have been, and as long as we still have a

Constitution, they never will be.”      In that editorial, he also

described his plans to request refunds for taxes withheld from

his earnings in previous years and to assert that he is not

subject to withholding in the current year.      He wrote that his

strategy is a “‘get out of income taxes free’ Monopoly card” for

life.

     In accordance with the plan described on his Web site,

petitioner submitted a Form 1040, U.S. Individual Income Tax

Return, for his 2005 tax year with zeros in all boxes for

reporting income.    He claimed a refund of $2,647.48, which was

the amount of Social Security and Medicare taxes that had been

withheld from his paychecks.    He attached to the Form 1040 two

Forms 4852, Substitute for Form W-2, Wage and Tax Statement.      In

his testimony at trial, petitioner stated that his contention

that he had zero income in 2005 is based on his belief that he

did not participate in any taxable activity since he lives in the

Commonwealth of Virginia and works for private corporations.

During 2005, petitioner received $32,207 for services performed

for Interstate Industries, Inc. (Interstate Industries), and

$2,400 for services performed for the Centre, Inc. (the Centre).

Petitioner submitted to both entities Forms W-4 on which he
                               - 4 -

claimed to be exempt from income tax withholding because he

expected to have no Federal tax liability.   In consequence, the

payors withheld no income tax from his compensation.

     Respondent disallowed petitioner’s claim for a refund and

informed petitioner of the disallowance in a letter dated May 20,

2006, which also warned petitioner that respondent had determined

the positions petitioner had taken on his Form 1040, including

his claim thereon for a refund, were frivolous.    Respondent also

referred petitioner to documents on the Internal Revenue Service

Web site titled “Why do I Have to Pay Taxes?” and “The Truth

about Frivolous Tax Arguments”, which provided petitioner with

specific legal citations explaining why frivolous tax-protester

arguments similar to his own have been rejected.    Petitioner read

both documents.   Petitioner dismissed those warnings and

respondent’s letter, writing that respondent’s position has “no

merit in the law”, and he protested respondent’s disallowance of

his refund claim in a letter dated June 15, 2006.

     Respondent treated petitioner’s 2005 Form 1040 as an invalid

return and assessed a $500 frivolous return penalty.   Respondent

filed a substitute for return for petitioner, dated September 5,

2008.   On December 31, 2008, respondent issued to petitioner the

deficiency notice.   Petitioner timely filed a petition with this

Court, disputing the determinations in the deficiency notice.
                               - 5 -

     At trial, petitioner did not dispute that he received from

Interstate Industries and the Centre the amounts shown in the

deficiency notice, but he claimed, on the basis of various

tax-protester arguments, that those amounts were not taxable

income.

     Petitioner previously advanced similar tax-protester

arguments in a proceeding before this Court disputing his tax

liability for his 2004 tax year.   See Mooney v. Commissioner,

docket No. 21647-06 (petitioner’s prior case), affd. 309 Fed.

Appx. 675 (4th Cir. 2009).   In petitioner’s prior case we found

that petitioner’s position was frivolous and groundless and that

he had instituted and maintained his case primarily for the

purpose of delay.   Despite our repeated admonitions that

petitioner would be penalized if he did so, he continued to

advance frivolous and groundless arguments.   In petitioner’s

prior case we therefore imposed a penalty of $1,000 pursuant to

section 6673(a)(1).

                              OPINION

     Petitioner conceded at trial that he received the amount of

compensation set out in the notice of deficiency for his 2005 tax

year.   However, petitioner argues that the income he received in

2005 was not taxable income within the meaning of the law.    To

support his assertion, petitioner offers only tax-protester

arguments and Forms 4852 he prepared himself.   The Forms 4852 are
                              - 6 -

based on tax-protester arguments, and we do not find them

credible.

     Gross income means all income from whatever source derived,

including compensation for services.   Sec. 61.    Compensation for

services rendered constitutes taxable income.     Abrams v.

Commissioner, 82 T.C. 403, 407 (1984).   Petitioner’s assertion

that the payments he received in 2005 were not taxable income

within the meaning of the law are frivolous.2     We do not address

petitioner’s frivolous and groundless arguments with “somber

reasoning and copious citation of precedent; to do so might

suggest that these arguments have some colorable merit.”       See

Crain v. Commissioner, 737 F.2d 1417, 1417 (5th Cir. 1984).

Accordingly, we conclude that the income respondent seeks to tax

is taxable income under the Code.   Consequently, we uphold

respondent’s determination of a deficiency in petitioner’s income

tax for his 2005 tax year.

     We next consider the issue of the failure to timely pay

addition to tax pursuant to section 6651(a)(2).     Section

6651(a)(2) provides for an addition to tax for failure to pay tax

shown on a return on or before the payment due date.     The

addition to tax is 0.5 percent per month, with an additional 0.5



     2
      A taxpayer’s argument is frivolous if it is “contrary to
established law and unsupported by a reasoned, colorable argument
for change in the law.” Coleman v. Commissioner, 791 F.2d 68, 71
(7th Cir. 1986).
                                - 7 -

percent per month for each month the failure continues, up to 25

percent.   Id.   In instances where the taxpayer fails to file a

return, the return prepared by the Commissioner pursuant to

section 6020(b) shall be treated as the return filed by the

taxpayer for the purpose of calculating the addition to tax

pursuant to section 6651(a)(2). Sec. 6651(g)(2).   For a return

prepared by the Commissioner to constitute a section 6020(b)

return, it must be subscribed, it must contain sufficient

information from which to compute the taxpayer’s tax liability,

and the return form and any attachments must purport to be a

return.    Spurlock v. Commissioner, T.C. Memo. 2003-124.

Respondent bears the burden of production under section 7491(c),

and petitioner bears the burden of proof.    See Higbee v.

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

     The record contains a substitute for return for tax year

2005.   The substitute for return is subscribed and includes a

section 6020(b) certification; Form 4549, Income Tax Examination

Changes; and Form 886-A, Explanation of Items.   Those forms are

sufficient for respondent to compute petitioner’s tax liability

for tax year 2005, and respondent has certified that they will be

treated as a return.   Because petitioner has not paid the amount

shown on the substitute for return, we uphold respondent’s

determination of the failure to pay addition to tax pursuant to

section 6651(a)(2).
                                - 8 -

     We next turn to the issue of whether petitioner is liable

for the failure to pay estimated tax additions to tax pursuant to

section 6654(a).    The Commissioner bears the burden of production

to show that the taxpayer had an estimated tax payment

obligation.   See sec. 7491(c); Wheeler v. Commissioner, 127 T.C.

200, 211-212 (2006), affd. 521 F.3d 1289 (10th Cir. 2008).

However, if the taxpayer fails to assign error to an addition to

tax or a penalty, he is deemed under Rule 34(b)(4) to have

conceded the penalty.    See Swain v. Commissioner, 118 T.C. 358

(2002).   We explained the interrelationship of Rule 34(b)(4) and

section 7491(c) as follows:

     An individual must first challenge a penalty by filing a
     petition alleging some error in the determination of the
     penalty. If the individual challenges a penalty in that
     manner, the challenge generally will succeed unless the
     Commissioner produces evidence that the penalty is
     appropriate. If an individual does not challenge a penalty
     by assigning error to it (and is, therefore, deemed to
     concede the penalty), the Commissioner need not plead the
     penalty and has no obligation under section 7491(c) to
     produce evidence that the penalty is appropriate.

Id. at 364-365.    Although petitioner specifically assigned error

in his petition to the additions to tax under section 6651(f) and

(a)(2), he failed to mention section 6654 or contest in any way

the addition to tax for failure to pay estimated tax.

Accordingly, we hold that, because petitioner did not assign

error in his petition to the addition to tax pursuant to section

6654, he is deemed to have conceded it.   See Rule 34(b)(4); Funk
                               - 9 -

v. Commissioner, 123 T.C. 213, 217-218 (2004); Swain v.

Commissioner, supra at 365.

     We address next whether petitioner is liable for the

addition to tax pursuant to section 6651(f) for fraudulently

failing to file a return.   Although petitioner filed what

purported to be a tax return for his 2005 tax year, he filled in

zeros for all lines where he should have reported income, and

respondent treated the return as an invalid return.   Respondent

now contends that petitioner should be liable for a penalty for

fraudulently failing to file a return.

     The majority of courts, including this Court, have held

that, generally, a return that contains only zeros is not a valid

return.   See United States v. Mosel, 738 F.2d 157 (6th Cir.

1984); United States v. Grabinski, 727 F.2d 681 (8th Cir. 1984);

United States v. Rickman, 638 F.2d 182 (10th Cir. 1980); United

States v. Moore, 627 F.2d 830 (7th Cir. 1980); United States v.

Smith, 618 F.2d 280 (5th Cir. 1980); United States v. Edelson,

604 F.2d 232 (3d Cir. 1979); Cabirac v. Commissioner, 120 T.C.

163, 169 (2003).   For example, in United States v. Moore, supra

at 835, the Court of Appeals for the Seventh Circuit noted that a

tax might conceivably be calculated on the basis of the zero

entries; however, “it is not enough for a form to contain some

income information; there must also be an honest and reasonable

intent to supply the information required by the tax code.”    See
                              - 10 -

also United States v. Mosel, supra at 158.     Accordingly, we

conclude that the return petitioner filed for his 2005 tax year

was invalid and tantamount to failing to file a return.     We must

therefore consider whether petitioner’s failure to file a return

should be considered fraudulent.

     In deciding whether a failure to file is fraudulent under

section 6651(f), we consider the same elements that are

considered in imposing the addition to tax for fraud under former

section 6653(b) and present section 6663.     Clayton v.

Commissioner, 102 T.C. 632, 653 (1994).     Fraud is defined as an

intentional wrongdoing designed to evade tax believed to be

owing.   Powell v. Granquist, 252 F.2d 56 (9th Cir. 1958); Miller

v. Commissioner, 94 T.C. 316, 332 (1990).    The Commissioner bears

the burden of demonstrating fraud by clear and convincing

evidence.   Sec. 7454(a); Rule 142(b).   The existence of fraud is

a question of fact to be resolved upon consideration of the

entire record.   Korecky v. Commissioner, 781 F.2d 1566, 1568

(11th Cir. 1986), affg. per curiam T.C. Memo. 1985-63; Estate of

Pittard v. Commissioner, 69 T.C. 391 (1977).     To carry the burden

of proof on the issue of fraud, the Commissioner must show, for

each year in issue, that (1) an underpayment of tax exists and

(2) some portion of the underpayment is due to fraud.      Petzoldt

v. Commissioner, 92 T.C. 661, 699 (1989).
                               - 11 -

     With respect to the first prong of the test, the

Commissioner need not prove the precise amount of the

underpayment resulting from fraud, but only that some part of the

underpayment of tax for each year in issue is attributable to

fraud.   Lee v. United States, 466 F.2d 11, 16-17 (5th Cir. 1972);

Plunkett v. Commissioner, 465 F.2d 299, 303 (7th Cir. 1972),

affg. T.C. Memo. 1970-274.

     The Commissioner must show that the taxpayer intended to

evade taxes known or believed to be owing by conduct intended to

conceal, mislead, or otherwise prevent the collection of taxes.

Korecky v. Commissioner, supra at 1568; Rowlee v. Commissioner,

80 T.C. 1111, 1123 (1983).   Fraud is not to be imputed or

presumed, but rather must be established by some independent

evidence of fraudulent intent.     Beaver v. Commissioner, 55 T.C.

85, 92 (1970); Otsuki v. Commissioner, 53 T.C. 96, 106 (1969).

However, fraud need not be established by direct evidence, which

is rarely available, but may be proved by surveying the

taxpayer’s entire course of conduct and drawing reasonable

inferences therefrom.   Spies v. United States, 317 U.S. 492, 499

(1943); Korecky v. Commissioner, supra at 1568; Rowlee v.

Commissioner, supra at 1123.     Although fraud may not be found

under “‘circumstances which at the most create only suspicion’”,

Petzoldt v. Commissioner, supra at 700 (quoting Davis v.

Commissioner, 184 F.2d 86, 87 (10th Cir. 1950), remanding a
                                - 12 -

Memorandum Opinion of this Court), the intent to defraud may be

inferred from any conduct the likely effect of which would be to

conceal, mislead, or otherwise prevent the collection of taxes

believed to be owing, Spies v. United States, supra at 499.

     Courts have relied on a number of indicia or badges of fraud

in deciding whether to sustain the Commissioner’s determinations

with respect to the additions to tax for fraud.    Although no

single factor may be necessarily sufficient to establish fraud,

the existence of several indicia may be persuasive circumstantial

evidence of fraud.   Solomon v. Commissioner, 732 F.2d 1459, 1461

(6th Cir. 1984), affg. per curiam T.C. Memo. 1982-603; Beaver v.

Commissioner, supra at 93.

     Circumstantial evidence that may give rise to a finding of

fraudulent intent includes:    Understatement of income; inadequate

records; failure to file tax returns; concealment of assets;

failure to cooperate with tax authorities; filing false Forms W-

4; failure to make estimated tax payments; and engaging in

illegal activity.    Bradford v. Commissioner, 796 F.2d 303, 307

(9th Cir. 1986), affg. T.C. Memo. 1984-601.    The “badges of

fraud” are nonexclusive.     Miller v. Commissioner, supra at 334.

The taxpayer’s background and the context of the events in

question may be considered as circumstantial evidence of fraud.
                                - 13 -

Spies v. United States, supra at 497; Plunkett v. Commissioner,

supra at 303.

     The instant case involves many badges of fraud.    Petitioner

is intelligent and well educated and properly filed and paid

taxes for a number of years before he recently began to claim, on

the basis of various tax-protester arguments, that his income is

not subject to Federal income taxation.    Petitioner wrote on his

Web site about his efforts to avoid paying income taxes,

characterizing his plan as a “‘get out of income taxes free’

Monopoly card”.    Pursuant to the strategy described on his Web

site, he failed to report any income on his 2005 Form 1040; yet

he acknowledged at trial that he did receive income during 2005.

Petitioner received and has read Internal Revenue Service

publications discussing tax-protester arguments like the ones he

has employed and explaining why such arguments fail.    Despite

petitioner’s being fully informed by respondent about the

frivolous nature of his arguments, petitioner’s correspondence

with respondent has been filled with tax-protester arguments and

has not addressed the factual accuracy of respondent’s

determination.    Petitioner has also previously attempted to use

similar arguments to dispute his tax liability before this Court,

and he is aware that we consider such arguments frivolous and

groundless.     Petitioner was unsuccessful in his prior litigation

before this Court.    Yet petitioner has persisted in claiming that
                              - 14 -

he is not subject to Federal income tax or income tax

withholding.

     Significantly, petitioner also filed false Forms W-4 with

his employers, in which he claimed not to be subject to Federal

income tax or income tax withholding.   We have held that the

filing of false Forms W-4 based upon a taxpayer’s purported

belief that he is exempt from tax is evidence of fraud.    See

Rowlee v. Commissioner, supra at 1125; Teeters v. Commissioner,

T.C. Memo. 2010-244; see also United States v. Kelley, 769 F.2d

215, 217 (4th Cir. 1985) (it was deceptive to file Forms W-4

claiming, on the basis of frivolous arguments, that wages were

exempt from income tax).

     We conclude that the record shows by clear and convincing

evidence that petitioner understated his income and that

petitioner’s failure to file a valid return was fraudulent.

Consequently, we hold that petitioner is liable for the fraud

addition to tax pursuant to section 6651(f) for his 2005 tax

year.

     Finally, we consider whether we should impose on petitioner

a penalty pursuant to section 6673(a)(1).   Section 6673(a)(1)

provides that this Court may require the taxpayer to pay a

penalty not in excess of $25,000 whenever it appears to this

Court:   (a) The proceedings were instituted or maintained by the
                                - 15 -

taxpayer primarily for delay; (b) the taxpayer’s position is

frivolous or groundless; or (c) the taxpayer unreasonably failed

to pursue available administrative remedies.   Respondent has

moved that the Court impose a penalty in the instant case.      We

have already imposed a $1,000 penalty pursuant to section

6673(a)(1) on petitioner in petitioner’s prior case, during which

he raised substantially the same arguments that he has now raised

in the instant case.   Apparently, the $1,000 penalty did not

deter petitioner from making frivolous and groundless arguments

before this Court.   Accordingly, we shall impose a $2,000 penalty

on petitioner pursuant to section 6673.   If petitioner persists

in raising frivolous arguments before this Court, wasting time

and resources that should be devoted to taxpayers with genuine

controversies, and continues to refuse to shoulder his fair share

of the tax burden, we will not hesitate in the future to impose a

significantly higher penalty.    Petitioner should think carefully

before he files another frivolous or groundless petition with

this Court.
                             - 16 -

     In reaching these holdings, we have considered all the

parties’ arguments, and, to the extent not addressed herein, we

conclude that they are moot, irrelevant, or without merit.3

     To reflect the foregoing,


                                        Decision will be entered

                                   for respondent.




     3
      Petitioner devoted large portions of his argument at trial
to the issue of whether respondent was entitled to assess a
frivolous return penalty pursuant to sec. 6702. However, we lack
jurisdiction in a deficiency proceeding to review the
Commissioner’s determination to assess the frivolous return
penalty under sec. 6702. Van Es v. Commissioner, 115 T.C. 324,
328-329 (2000).
