County to collect $800,000 from bankruptcy of tax protester


Howard County is expected to get an $800,000 windfall later this month as part of bankruptcy proceedings for an Ellicott City businessman convicted of tax evasion.

County Executive Charles I. Ecker said the money -- most of the delinquent taxes owed by Fred Waters Allnutt Sr. -- will go into the county's general fund.

"This is a rather large sum," Mr. Ecker said. "We're very fortunate to get it."

Mr. Ecker said the money will not be earmarked for specific programs in the fiscal 1996 operating budget that he will unveil next week.

Mr. Allnutt and his attorney, Timothy Umbreit of Baltimore, could not be reached for comment. Mr. Allnutt began challenging the constitutionality of paying taxes more than 10 years ago.

The county is getting the money from a liquidation and compensation plan approved by Judge James Schneider during a hearing in U.S. Bankruptcy Court in Baltimore on March 29. The plan takes effect today.

The bankruptcy case is expected to be closed later this year, ending a tax battle between Mr. Allnutt and several government agencies that lasted more than a decade

Mr. Allnutt, convicted of tax evasion in 1983, no longer owns his company, called JFC Excavating. He is permitted to hold a management position at the firm under a court-approved arrangement worked out two years ago.

Mark Friedman, a Baltimore attorney appointed by the court as trustee of Mr. Allnutt's estate, said the case is one of the most complicated bankruptcy cases he has ever handled.

"This was on its own level," he said. "I essentially had no cooperation whatsoever and had to ferret out information on my own. That's what made it so complex."

The attorney said Howard County will receive its money later this month, and other creditors will get the remainder.

Bankruptcy documents said the county initially sought $940,825, but agreed during negotiations with Mr. Friedman to accept the lesser amount for property taxes it said were owed for 1983 to 1992.

Assistant County Solicitor Rebecca Laws said the county didn't pursue the full amount so other creditors -- particularly small Howard County businesses -- could recover the money owed to them.

The county is one of 55 creditors listed in federal bankruptcy documents. Others owed large amounts of money include the state of Maryland and the Internal Revenue Service.

As part of the compensation plan, the state will receive $195,022 and the IRS will get $3 million. The state initially wanted $1 million and the IRS wanted $6.3 million, but officials agreed to take lesser amounts.

The money going to the creditors will come from Mr. Allnutt's $4.3 million estate, now managed by Mr. Friedman. The money was raised from a 1993 auction of his company's building, vehicles and construction equipment.

Mr. Allnutt began challenging his responsibility to pay county, state and federal taxes in 1981, according to bankruptcy documents.

He has not filed a federal tax return since 1981, records say. Mr. Allnutt said at his 1983 tax-evasion trial that he believed paying taxes with Federal Reserve notes was unconstitutional.

When Mr. Allnutt continued to refuse to pay, the IRS sought payment in 1989 of nearly $2 million in taxes that the agency said he did not pay between 1981 and 1986.

The IRS seized his company in 1992, saying that Mr. Allnutt owed more than $6 million, which included the back taxes, interest and penalties.

Mr. Allnutt filed for Chapter 11 reorganization in October 1992, the day after a federal judge denied his request for an injunction that would have blocked the seizure of his company by the IRS.

Mr. Ecker said he hopes the Allnutt case will provoke other delinquent taxpayers to come clean with the county, regardless of the amount of money they owe.

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