Quatloos! > Tax Scams > Tax Protestors > Anti-IRS Theories > US v Engh

U.S. v. Engh

“Nothing hurts more than having to pay an income tax,
unless it 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 the trust.

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 creditor.

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.”