Tax protester beats IRS charges in court Businessman avoids prison but still owes $3 million

April 01, 1996|By Caitlin Francke | Caitlin Francke,SUN STAFF

Fred Allnutt Sr. has fulfilled the fantasy of many Americans -- thumbing his nose at the Internal Revenue Service.

The longtime Ellicott City tax protester and his son Christopher were acquitted in federal court last week of charges that they conspired to evade taxes by hiding their assets and not filing tax returns.

While Mr. Allnutt avoided a possible decade of prison time, his tax woes are far from over.

Mr. Allnutt, 54, still owes the IRS about $3 million in back taxes, interest and penalties for taxes he did not pay from 1981 to 1986, according to his defense team. Christopher Allnutt, 31, is negotiating with the IRS over the $1.6 million it says he owes.

"Does the 'not guilty' verdict mean that someone does not have to pay their back taxes? That is not the case," said Domenic LaPonzina, IRS spokesman. "The jury is for the criminal charges only."

After three days of deliberations, the jury of taxpayers decided that Mr. Allnutt had committed no crime -- even though he did not file tax returns from 1981 to at least 1993, according to federal bankruptcy records.

Mr. Allnutt was convicted on a separate state tax charge in the early 1980s but never went to prison.

"The hand of the Lord raised 12 brave people to stand up against government tyranny and oppression and sent a message that will be heard around the nation," he said in a statement released by his attorney after he was acquitted Thursday afternoon.

"The IRS just wants to shut me up," he said. "I have always been open about my opposition against the income tax and I will never stop."

The verdict was met with disbelief.

"What? How did he get acquitted?" asked Howard County Council Chairman Darrel Drown. "That's a strange message that we are sending to the world."

Asked why a jury of taxpayers would acquit someone who has been so overt in defying the tax system, U.S. Attorney Lynne Battaglia said jurors often are ambivalent in tax cases. "All of us have to pay taxes, but all of us fear the tax collector," Ms. Battaglia said.

Mr. Allnutt began challenging his responsibility to pay county, state and federal taxes in the 1980s.

In 1981, he refused to pay state income and sales taxes on the grounds that paying taxes with federal reserve notes is unconstitutional, one of his lawyers James Lupinek said.

Convicted of tax evasion, Mr. Allnutt served no prison time. He was ordered to pay a $9,500 fine and serve an 18-month suspended sentence and five years' probation.

In last week's federal case, Mr. Allnutt asserted that IRS guidelines did not apply to him. He believes that only nonresident aliens and foreign companies with sources of income within the United States have to pay federal income tax, Mr. Lupinek said.

"He wholly believes it," Mr. Lupinek said, "but I don't understand a whole lot of it." Defense attorneys argued that Mr. Allnutt believed in "good faith" that he did not have to pay taxes.

But prosecutors maintained that in 1988, Mr. Allnutt orchestrated a scheme to hide his assets by not keeping bank accounts in his name. Accounts of JFC Excavating -- his former company later bought in bankruptcy by Mangione Enterprises -- were used to support Mr. Allnutt and pay his personal expenses, prosecutors said.

The defense said those assets were in plain sight. Mr. Allnutt bought three houses at $400,000 apiece for his children and owned a business.

"It's hard to hide a tractor," said M. Brooke Murdoch, who represented Christopher Allnutt.

Mr. Allnutt filed for protection from creditors under Chapter 11 of the federal bankruptcy law about three years ago. Mangione Enterprises bought the business from the bankruptcy court for $7.4 million and took over operations in 1993. The company hired Mr. Allnutt as general manager, and he continues to work at the excavating business.

As for "the human side and business side of it, we're happy he got himself acquitted," said Joe LaVerghetta, general council for the Mangione family. He described Mr. Allnutt's relationship ties with Nicholas B. Mangione, the family patriarch and a well-known local developer, as a close business relationship.

From the sale of JFC Excavating, Howard County received $800,000 for unpaid taxes, the state $195,022 and the IRS $3 million.

After Thursday's acquittal, Mr. Allnutt may still hold firm to his tax-resister beliefs, but Christopher Allnutt has begun paying his taxes, Ms. Murdoch said. He did not file returns from 1983 to 1994.

Christopher Allnutt "believed he was not required to pay taxes because his father told him he didn't have to," Ms. Murdoch said.

Pub Date: 4/01/96

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