Don’t Try This at Home – Another “Tax Protester” Punished by the Tax Court

Tax Court upholds the IRS’s income tax deficiency determination and penalty assessments made against taxpayer’s for the 2005 tax year in which he filed a zero income return as part of plan to implement a lifetime “get out of income taxes free” Monopoly card.

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Patrick M. Mooney v. Commissioner, (2011) TC Memo 2011-35

Facts.  At the time he filed his petition in the U.S. Tax Court, Patrick M. Mooney (“Mooney”) lived in Virginia.  Mooney earned a bachelor’s degree in political science from Loyola University in New Orleans, Louisiana, and was previously a high school educator.  Before 2004, Mooney had filed income tax returns since he graduated from college.

Mooney operates his own web site, on which he has published, among other things, a March 1, 2005, editorial entitled “Unlearning Pays! Hendrickson, Mooney & Others Bring IRS to Heel.”  In that editorial, Mooney 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, Mooney 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, Mooney 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, Mooney received $32,207 for services performed for Interstate Industries, Inc. (“Interstate Industries”), and $2,400 for services performed for the Centre, Inc. (the “Centre”).  Mooney submitted to both entities Forms W-4 on which he claimed to be exempt from income tax withholding because he expected to have no federal tax liability.  In consequence, his employers withheld no income tax from his compensation.

Accordingly, the IRS assessed an income tax deficiency for 2005, and imposed upon Mooney a failure to pay penalty and a fraudulent failure to file penalty.

Tax Court Ruling.  In siding with the IRS on all counts, the Tax Court stated that although no single factor may be necessarily sufficient to establish fraud, the existence of several indicia might be persuasive circumstantial evidence of fraud.  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.

In examining Mooney’s record, the Court noted that this case involves many badges of fraud.  Mooney is intelligent, well educated, and properly filed and paid taxes for a number of years before he recently began to claim, based on various tax-protester arguments, that his income is not subject to federal income taxation.  Mooney 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.  Mooney 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 Mooney being fully informed by the IRS about the frivolous nature of his arguments, his correspondence with the IRS was filled with tax-protester arguments and has not addressed the factual accuracy of the IRS’s determination.  Finally, the Tax Court also noted that Mooney had previously attempted to use similar arguments to dispute his 2004 tax liability before the Court, and was then made aware that it considers such arguments frivolous and groundless.

The Tax Court concluded by imposing a $2,000.00 penalty upon Mooney for fraudulently failing to file his 2005 income tax return.  The Court completed its opinion by warning Mooney that if “he 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.”

For more on “tax-protester” arguments visit or click here.

To read Mooney’s March 1, 2005 editorial entitled “Unlearning Pays! Hendrickson, Mooney & Others Bring IRS to Heel” click here.