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“Nothing hurts more than having to pay an income tax,
is not having to pay an income tax.”
-Thomas Robert Dewar
U.S. v Engh Court Document
As our tax protestor, in this case, Mr. Engh quickly found out, not paying
your income tax can be quite painful! Unfortunately for Mr. Engh, his misguided
claims that the federal income tax is unconstitutional are tirelessly moot.
Many have tried the argument, and all have miserably failed.
Now, Mr. Engh doesn’t fit the profile of your ordinary tax protestor.
He had a great paying job as a pilot, with a top-notch airline, and netted
a six-figure salary. However, Mr. Engh fell victim to the sultry false siren
and bought into the tax protest movement. And bought into it he did.
In 1982, while disputing a tax claim from a 1979 tax return, which included
an improper $8,000 deduction, Engh claimed that, among other things, the federal
income tax was unconstitutional. The court scoffed at his argument, and of
course Engh lost the dispute. After his “stunning” defeat, Engh
was forced the pay the deficiency. Although Engh lost his tax claim, he further
embraced the tax protestor movement, with great vim and vigor. He amassed,
in his words, “a whole library” of publications, concerning the
legalities of the federal income tax. At that point, since Engh felt the “system” didn’t
apply to him, he stopped filing tax returns from 1982-1987.
Not only did Engh stop filing returns, he filled out a W-4 form with his employer,
claiming to be exempt from income tax withholding. Engh kept all the mail he
received from the IRS in a drawer, unopened. Maybe he thought if he ignored
the IRS, they would just leave him alone.
In 1983, during his rebellious tax-protesting phase, Engh created an Illinois
land trust, which he dubbed “The Marstonmoor Trust”. Mr. Engh received
the trust instrument from a well-known tax protestor of the time, George Thiel.
Once the trust was created, Engh transferred the interest in his Marstonmoor
Road residence, which was a four-parcel tract of land in Davis, Illinois, to
Under Illinois law, a conveyance is void if it is “made with the intent
to disturb, delay, hinder or defraud creditors or other persons.” In
1989, Illinois adopted the Uniform Fraudulent Transfers Act, which became effective
January 1, 1990. The district court in this case analyzed Engh’s conveyance
under the UFTA, although the dicta is not clear as to whether or not the UFTA
was meant to be applied retroactively. The court in this case did not decide
the retroactivity issue. The court reasoned that Engh’s conveyance would
have been fraudulent under any version of Illinois law.
To illustrate the existence of a fraudulent transfer, Illinois courts look
to the presence of “badges of fraud.” The court in this case, looked
at the fact that no consideration was given for a property that had considerable
value. Next, Engh still retained possession of the property for his enjoyment.
He continued to live there with his family, pay property taxes (believe it
or not), and continue maintenance of the house. The court found that transferring
the title, while still retaining the property’s use and enjoyment, constituted
a sham. Additionally, this conveyance was made to family members. Although
transferring property to family members isn’t always questionable, in
this case, taking into account the circumstances of the transfer, the court
found that Engh had a “present and clear intent” to avoid the IRS
Not only did Engh fraudulently transfer the Marstonmoor property, but there
were also a series of other conveyances and “investment” efforts,
that were clearly put forth in an effort to place his property and income beyond
the reach of tax laws. In the end, the court in this case found that “the
circumstances overwhelmingly demonstrate that Engh transferred his interest
in the Marstonmoor property to the trust in furtherance of a scheme to put
his assets out of the reach of the IRS.”
Mr. Engh learned the hard way that tax evasion just isn’t worth the
extra money in your pocket. Taxes are and will always be a part of being a
citizen of this great nation. As Benjamin Franklin once noted, “In this
world nothing can be said to be certain, except death and taxes.”