Developer may rescue tax evader's business Excavating firm's 74 jobs are on the line

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

Developer Nicholas B. Mangione may save a financially troubled Ellicott City excavating company from liquidation and allow convicted tax evader Fred Waters Allnutt Sr. to run it for him.

Mr. Allnutt, who was convicted in 1983 of refusing to file a state tax return or pay property taxes, filed for bankruptcy in October after the Internal Revenue Service seized the assets of JFC Excavating to satisfy a $6 million tax lien.

The IRS says Mr. Allnutt did not file personal income tax returns for the years 1981 through 1986 and that he was the owner of JFC Excavating and related companies. Mr. Allnutt claimed that he was not the owner, but a federal court ruled in June that he is. He is appealing that decision.

Baltimore attorney Mark J. Friedman, the appointed trustee for Mr. Allnutt, has been running JFC Excavating the past 10 months. He is asking federal bankruptcy Judge James F. Schneider for permission to sell the assets of the company at auction in mid-November.

"This is a very gut-wrenching hearing, a gut-wrenching case," Mr. Friedman said yesterday in his closing argument in federal bankruptcy court in Baltimore. The company is dying and the only way to pay its debts to the Internal Revenue Service is to sell the company's assets, he said.

Stanton J. Levinson, a Bethesda attorney representing Mr. Allnutt, told Judge Schneider there may be another way.

Mangione Family Enterprises might put together a deal over the weekend in which they would buy the Allnutt Building and a small amount of the earth-moving equipment, Mr. Levinson said. The Mangione company would also take over existing contracts and see that they are completed. Mr. Friedman, as trustee, would collect money still owed JFC Excavating and would sell the remaining assets at auction. Mr. Allnutt would run the company under Mr. Mangione's direction, Mr. Levinson said.

The jobs of the 74 employees would not be saved right away, Mr. Levinson said, but Mr. Mangione -- owner and developer of Turf Valley Country Club -- would hire as many as he could now and add others as business increased.

"The amount of money involved is small," Mr. Levinson said, "not such a big deal that they would have to go to New York" for financing -- a process that could take weeks. Witnesses had testified Wednesday that Mangione Enterprises had made an offer of $7.2 million that was dependent upon financing approval of a New York firm.

Mr. Mangione's attorneys are to review JFC's outstanding contracts and submit their offer to Mr. Friedman by noon on Monday. Mr. Mangione, who is scheduled to be in New York this weekend, could not be reached for comment.

"I am a realist and realize that certain things have to be done," Mr. Allnutt said following yesterday's hearing. "It would be a tremendous shame for the business to shut down. The government is not going to go broke" if it does not collect all that it says it is owed.

Earlier, Mr. Allnutt had testified that if he were managing the company for another owner, he would be willing to pay taxes and negotiate a compromise with the IRS despite his long-held belief that he is not required to file income tax returns.

"I do what I have to do at the moment and take everything a day at a time," Mr. Allnutt said privately following his testimony. "I am not a tax protester. . . . My arguments [as to why he believes he is not required to file returns] are not wrong. I have honorably fought my battle.

"The failure is the courts' protection of a sacred cow. Change in America comes only when people are willing to step forward and take the heat."

Judge Schneider will decide Tuesday morning whether to allow the assets of JFC excavating to be sold at auction between Nov. 9 and Nov. 18.

"It would be a mistake to render a decision today that may make a difference to . . . employees and customers," Judge Schneider said. "There are still a number of things left undone. Six more days won't make a detriment and can make a benefit. . . . My responsibility is to get the highest and best return for the creditors. At the last gasp, somebody who has a final offer may come forward."

In addition to the $6 million owed the IRS and the roughly $940,000 claimed by Howard County for nonpayment of property taxes, the company has other debts of about $100,000, witnesses testified. Witnesses also said the company is owed about $2.5 million from creditors.

Debate throughout the hearing centered on whether a company saddled with such debt is viable.

Mr. Friedman said it is not.

"There is insufficient management to run the business in a proper way and a lack of work to keep it going" at a level to pay its tax debts, he said. He tried "every possible alternative" to liquidation, Mr. Friedman said, but "could justify no other conclusion."

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