Tax evader's business faces auction block Trustee requests OK to liquidate

September 23, 1993|By James M. Coram | James M. Coram,Staff Writer

A Baltimore attorney asked permission in federal bankruptcy court yesterday to dissolve a once-thriving Ellicott City excavating business and sell its assets at public action in November.

Mark J. Friedman, trustee for convicted tax evader Fred Waters Allnutt Sr., told the court that his planned liquidation of JFC Excavating between Nov. 9 and Nov. 18 is a strategy of last resort.

He earlier sought to reorganize the company but could not find the necessary leadership, Mr. Friedman said. He next sent a prospectus to 14 potential buyers, but none made an offer until after he decided to auction the assets, Mr. Friedman said.

Mr. Friedman said he had hoped to find a buyer to protect the 60 to 65 jobs that will be lost in the liquidation. However, "the assets are worth more sold piecemeal than in a package" and are jeopardized by the company's continued operation, Mr.

Friedman told Judge James F. Schneider. "JFC is a company that is dying."

Stanton J. Levinson, a Bethesda attorney representing Mr. Allnutt, suggested that there may be another reason for the company's recent deficit. He cross-examined Mr. Friedman about what he called "a negative swing" in the operations of the company during Mr. Friedman's stewardship as trustee.

Testimony provided by an earlier witness indicated that the company had gross revenues of $8 million to $9 million a year with an average annual profit of $1 million before the appointment of Mr. Friedman as trustee, Mr. Levinson said. It has lost $896,000 in the 10 months since.

Mr. Friedman said the decline is due to other circumstances, including a downturn in the construction industry.

"Maybe it was more profitable because it wasn't paying taxes," Judge Schneider said.

The Internal Revenue Service seized the assets of the company early in October 1992 to satisfy a $6 million tax lien. The IRS said Mr. Allnutt owed the money as a result of his failure to file personal income tax returns from 1981 to 1986.

In addition, Howard County says that Mr. Allnutt has not paid property taxes since 1981 and owes the local government more than $940,000.

Following the IRS seizure, Mr. Allnutt filed for bankruptcy, and Mr. Friedman was appointed his trustee. The company resumed operations under Chapter 11 of the federal bankruptcy code.

His first goal, Mr. Friedman told the court, was to work out a compromise between Mr. Allnutt and the IRS, but Mr. Allnutt's "political, philosophical and religious views did not lend themselves to compromise."

After his appointment as trustee, Mr. Friedman had to sue to gain access to the company's records, some of which had been "tampered with, forged and fabricated," he said. "The litigation destroyed any level of cooperation. . . . It became very clear there were no means for internal reorganization -- no strong management and not a sufficient amount of new work."

Mr. Allnutt has not been involved in the day-to-day operations since February. He was convicted in 1983 of refusing to file a state tax return or pay property taxes.

The case will continue today when Judge Schneider is expected to hear from Mr. Allnutt and others opposed to the liquidation.

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