How One Attorney Became Personally Liable for $2M in Entity Taxes : A Cautionary Tale Under 31 U.S.C. § 3713

According to Law360, A Baltimore attorney who manages a client's holding company is personally responsible for paying the entity's unpaid taxes, a Maryland federal judge said, finding that he approved and oversaw loan transactions that prompted the IRS to seek $2 million from the entity.

As director, president and treasurer of Lehcim Holdings Co., Isaac M. Neuberger is accountable because he transferred the company's assets knowing there was still an outstanding tax debt, which the Internal Revenue Service assessed after it disallowed the entity's loan interest deductions, U.S. Magistrate Judge Erin Aslan said in a memorandum decision Thursday.

Neuberger had helped conceptually develop a plan to make those transfers, directed that it include and exclude certain entities, monitored its progress and "overruled outside counsel's decision" to put the plan on hold, which makes him liable under the Federal Priority Statute, 31 U.S. Code Section 3713, Judge Aslan said.

"Other Courts Have Found Corporate Directors And
Officers Who Took Similar Actions With Similar
Fact Patterns Personally Liable," The Judge Said.

The unpaid taxes stemmed from an IRS finding that the unsecured loans the company borrowed from Nightingale Ventures — a British Virgin Islands-based entity with business ties to the Konigs and managed by Neuberger himself — were not bona fide. The agency later disallowed the claimed tax deductions on those loans in the company's returns for 2010 to 2015.

In the memorandum, the judge noted that Neuberger knew about the IRS examinations and 2020 collection notice but that Lehcim did not challenge the agency's final assessment. The IRS also attempted to levy other entities that held Lehcim assets, including Neuberger's law firm, which held money on behalf of the company.

The Neuberger case serves as a cautionary tale for attorneys and fiduciaries managing client funds or corporate entities, reminding them that federal tax claims often have priority over other obligations. 

The decision demonstrates the IRS’s ongoing willingness to enforce Section 3713 in civil actions, thrusting professionals like Neuberger into the spotlight for personal liability where federal interests are jeopardized. 

As enforcement priorities evolve, practitioners are reminded to rigorously assess tax claims against all other debts before approving substantial transactions on behalf of clients or entities.

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