Legal Representative Is Personally Liable for $1.9 Million of Insolvent Corp's Tax Debt

(Parker Tax Publishing February 2026)

A district court held that, pursuant to Federal Priority Statute 31 U.S.C. Sec. 3713, a lawyer who transferred assets of a client's corporation to third parties before paying the corporation's income taxes was personally liable for almost $1.9 million in damages. The court determined that the lawyer, as the corporation's legal representative, had knowledge of the government's claim for tax liabilities and the amount of those liabilities and played an integral role in the development, oversight, and execution of a plan to pay entities other than the government when the corporation was insolvent. U.S v. Neuberger, 2026 PTC 24 (D. Md. 2026).

Facts

Isaac Neuberger is a principal in a Baltimore law firm, Neuberger, Quinn, Gielen, Rubin & Gibber, P.A. (NQGRG). He primarily represents high-net-worth families and family enterprises. Michel Konig is one of NQGRG's clients and Neuberger represents Konig and other members of the Konig family with regard to business investments and planning. In 2001, on behalf of Konig, NQGRG prepared and signed articles of incorporation for Lehcim Holdings, Inc. (Lehcim), an investment company. Konig's family has economic ownership of Lehcim. Neuberger was Lehcim's only director and appointed himself the company's president and treasurer.

In November of 2022, the U.S. government initiated an action pursuant to the Federal Priority Statute, 31 U.S.C. Sec. 3713, seeking a judgment against Neuberger for transferring Lehcim's assets to third parties before paying the United States' claim for income taxes at a time when Lehcim was insolvent.

In pertinent part, 31 U.S.C. Sec. 3713(a)(1)(A) provides that a claim of the U.S. government must be paid first when a person indebted to the government is insolvent and the debtor without enough property to pay all debts makes a voluntary assignment of property or an act of bankruptcy is committed. The term "claim" generally means any amount of funds that have been determined by an appropriate official of the federal government to be owed to the U.S. by a person, organization, or entity other than another federal agency. Federal courts have consistently held that this broad definition encompasses federal tax debts. Under 31 U.S.C. Section 3713(b), a representative of a person or an estate (except a trustee acting under title 11) paying any part of a debt of the person or estate before paying a claim of the government is liable to the extent of the payment for unpaid claims of the government.

In U.S. v. Neuberger, 2025 PTC 358 (D. Md. 2025), a district court found Neuberger personally liable for the government's claim pursuant to 31 U.S.C. Sec. 3713(b). The court concluded that Neuberger was personally liable because he was (1) Lehcim's representative; (2) had knowledge of the United States' claim for tax liabilities; and (3) played an integral role in the development, oversight, and execution of a plan to pay entities other than the government when Lehcim was insolvent.

Thereafter, the parties filed memoranda of law specifically addressing the issue of damages. The government argued that Neuberger was liable for the full amount of Lehcim's unpaid tax debt, including all penalties and interest, which continue to accrue so long as the balance remains unpaid. The government stated that the calculation of damages was "statutory arithmetic," which totaled "$3,330,664 as of October 31, 2025." According to the government, to reach this amount, the court must begin with "the amounts of the tax assessments . . . determined in Lehcim's audit" and then calculate the penalties that accrue as a matter of law under Code Sec. 6651(a) and Code Sec. 6662(a) for Lehcim's failure to file returns, properly report tax, and pay tax when due, and then further add the amount of interest that accrues as a matter of law under Code Sec. 6621 from the date the taxes were due until they are paid.

Analysis

The court entered a judgment against Neuberger in the amount of $1,880,988. With respect to the government's request for a $3,330,664 assessment against Neuberger, the court found the government's assertion that "there is no grey area in this phase of the case" astonishing in light of the fact that the government failed to offer clear legal or evidentiary support for its position.

The court also noted that the government had not identified any precedent or other binding authority that held that the intricate tax code calculations it proposed governed damages in a Federal Priority Statute case. The statutes cited by the government, the court observed, concerned the computation of penalties and interest under the Internal Revenue Code in connection with a tax liability. At the risk of stating the obvious, the court said, the government's cause of action in the instant case arose under the Federal Priority Statute, not the Internal Revenue Code, which necessarily shaped the scope of available remedies.

The court found that neither party had identified, and the court had not found, any case that explicitly discussed - let alone established - the method of a damage calculation in a case such as this. The lack of clear authority governing the calculation of damages in this action, the court said, called for an analysis of the few cases that do exist, as well as the exercise of reason and judgment. To this end, the court found persuasive cases that have concluded that the operative variable in determining the damages is the amount of the United States' claim to which the representative has notice. Consistent with this approach, the court cited Est. of Johnson v. Comm'r, T.C. Memo. 1999-284, where the representative was liable only for the amount of unpaid taxes of which she had notice, not the after-accruing penalties and interest. The court concluded that Neuberger was liable for the amount in unpaid taxes, penalties, and interest identified in the IRS's 30-day letter issued in March 2019, as that represented the amount of the government's claim that had accrued and of which Neuberger had knowledge.

For a discussion of collecting tax-related liabilities from a fiduciary, see Parker's Tax Analysis ¶262,530.

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