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Alter-Ego, Liens, Levy, IRS, Current Topics, Client Trust Accounts, Law Firms, Professional Service Firms, Corporate Colette Karam Alter-Ego, Liens, Levy, IRS, Current Topics, Client Trust Accounts, Law Firms, Professional Service Firms, Corporate Colette Karam

IRS Alter-Ego Levies: District Court Rejects IRS Levy on Law Firm Operating Account

A recent federal district court decision is a useful reminder that the IRS’s levy power is broad, but not unlimited. In Neuberger, Quinn, Gielen, Rubin & Gibber, P.A. v. United States, the U.S. District Court for the District of Maryland held that the IRS wrongfully levied a law firm’s operating account under an alter-ego theory to collect the tax liabilities of a separate corporate taxpayer.

The case is important for law firms, fiduciaries, professional service firms, family offices, and other advisors who form entities, serve as officers or directors, maintain client ledgers, or hold client funds in trust. The IRS may scrutinize these arrangements when it cannot collect from the taxpayer directly. But the government still must prove a legally sufficient connection between the taxpayer and the property levied.

The court found that the IRS failed to do so.

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