Tax protester loses latest court battle Allnut concealed assets, judge says

June 24, 1993|By James M. Coram | James M. Coram,Staff Writer

An Internal Revenue Service posse appears to have finally caught up with Ellicott City developer Fred Waters Allnutt, a convicted tax evader who has been protesting payment of taxes for more than a decade.

A U.S. district judge in Baltimore has issued a scathing opinion in which he ruled that Mr. Allnutt owns the trucks, earthmoving equipment and Ellicott City office building seized by the IRS last October in connection with a $6 million lien for nonpayment of taxes for 1981 through 1986.

Mr. Allnutt, who filed for bankruptcy following the seizure, said he did not have any income. The property seized by the IRS, although once his, now belongs to businesses owned and run by others, including his two sons, he told the court.

Judge Frederic N. Smalkin ruled otherwise.

"The cardinal issue," the judge said Monday in a memorandum of opinion, is "where did the property of Fred W. Allnutt . . . go?"

The only reasonable answer, the judge said, is "that it went into hiding behind various front businesses assertedly run by his then young children and nominal trustees, but controlled and used by him as alter egos to frustrate and defeat the collection of taxes."

Several of those businesses -- JFC Excavating, Sovereign Equipment Association, Constitutional Leasing Association, and Ellicott Building Association -- have the same Baltimore National Pike address as the Fred W. Allnutt Building and were included in the IRS lien.

A number of records relating to Mr. Allnutt and those businesses "have been destroyed and others have admittedly been fabricated" following the IRS seizure, Judge Smalkin said. The destruction and fabrications were admitted during the recanting of perjured testimony, he said.

The judge said Mr. Allnutt's "purported transfers of assets" from himself to others "were obviously shams and transactions calculated to evade the IRS as a tax creditor." Not only did the transfers have "the badges of fraud, they reeked of it," Judge Smalkin said.

What the decision means, said Mark J. Friedman, the court-appointed trustee for Mr. Allnutt, is that Mr. Friedman is now responsible for the future of Mr. Allnutt's excavating business.

According to court documents, the company has construction contracts which may be worth $25 million and debts of $11

million, including the amount claimed by the IRS.

"My obligation as a trustee is to represent the interest of creditors, which may or may not involve the IRS," Mr. Friedman said.

Neither Mr. Allnutt nor James L. Mayer, the Columbia attorney representing JFC Excavating and the Allnutt children, returned phone calls yesterday.

Mr. Mayer defended Mr. Allnutt in 1983 when he was convicted in an unrelated tax case for failure to file a valid 1981 state tax return and for failure to pay his 1981 retail sales taxes. His gross income was reported to have been more than $400,000 that year.

Mr. Allnutt said at the time that he believed the state of Maryland could not require him to pay taxes because Federal Reserve notes are illegal. He based his belief of illegality on Article I, Section 10.1 of the Constitution, which says states shall not "make anything but gold and silver coin a tender in payment of debts."

Other taxpayers who used that argument as a reason for failing to file federal or state tax returns were required to pay up or go to court. Those who went to court were convicted, and most spent time in jail.

Mr. Allnutt did not. At the time of sentencing, Circuit Judge Guy Cicone told him, "This is perhaps a case that bothers me as much as it bothers you. Let me allay your fears and those of your family. If anybody is pondering the idea you may go to jail, I promise you, you won't."

Judge Cicone gave Mr. Allnutt a six-month suspended sentence that called for him to serve five years on probation, four of them unsupervised.

However, Mr. Allnutt did not meet with his probation officer other than on the day of his sentencing. Like every other part of his sentence, the probation portion was stayed while he appealed it.

According to court records, Mr. Allnutt told his probation officer on the day of his sentencing that he was self-employed but had no income, and that he had no intention of paying $10,755.50 in fines and court costs. Regardless, he paid $3,000 before his appeal.

After his appeal was denied, the probation officer asked for and received a court order in May 1986 demanding that Mr. Allnutt appear in court to say why his probation should not be revoked for failure to pay the $7,555.50 he still owed the court. In August of the same year, the money was paid and the probation terminated.

Documents in the case Judge Smalkin decided this week allege that Mr. Allnutt has not paid any taxes since 1981.

Following the IRS seizure of his property and his filing for bankruptcy last October, Mr. Allnutt waged a pamphleteering war against the IRS, calling the seizure an "obvious, yet futile attempt to destroy JFC Excavating."

The IRS used "misrepresentations, trickery, false legal arguments and outright lies," he said. "With your continued help and support we cannot fail."

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