Sole Director and President Held Personally Liable for Insolvent Corporation's Tax Debts

(Parker Tax Publishing December 2025)

A district court magistrate judge held that the sole director, president, and treasurer of a corporation was personally liable for the outstanding tax liability of the corporation under 31 U.S.C. Sec. 3713 (the Federal Priority Statute). The court found that that the corporation was insolvent at the time it repaid over $8.8 million in loans from a related company instead of paying assessed taxes and penalties and the sole director was a representative of the corporation who transferred company assets with knowledge of an IRS assessment and notice of intent to levy. U.S. v. Neuberger, 2025 PTC 358 (D. Md. 2025).

Background

Isaac Neuberger is a principal in a Baltimore law firm, Neuberger, Quinn, Gielen, Rubin & Gibber, P.A. (NQGRG). Neuberger primarily represents high-net-worth families and family enterprises. Michel Konig is one of NQGRG's clients. Neuberger is the "relationship partner" who represented 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). Lehcim is an investment company. Lehcim holds investments in other partnerships and makes investments in the United Sates. Konig's family has economic ownership of Lehcim. Neuberger was Lehcim's only director and appointed himself the company's president and treasurer.

Lehcim would lend to and borrow money from other entities owned by the Konig family because they were all related companies owned by the same trusts for the benefit of the Konig family. In 2002, Neuberger executed a document that authorized Lehcim to borrow up to $5 million from Nightingale Ventures, Ltd. (Nightingale), a British Virgin Islands company. Nightingale lends money to companies based in the United Sates that are owned by the Konig family so those companies can make investments. Neuberger was the director of Nightingale from 2002 to 2009. This was an unsecured loan, and the promissory note contained no repayment terms other than the interest rate. Beginning in 2002, Nightingale made three loans to Lehcim totaling $8,816,813.

For the tax years 2010 through 2020, Lehcim reported liabilities on its tax returns that primarily consisted of the three Nightingale loans. During those same years, Lehcim claimed substantial tax deductions each year for the 18 percent interest accruing on the 2002 Nightingale loan. The IRS began auditing Lehcim's tax returns in 2014 or 2015 and over the next five years the IRS examined Lehcim's returns for the 2010 through 2015 tax years. By 2018, the IRS concluded that Lehcim's loan interest deductions were improper because the loans were not bona fide and therefore, the IRS disallowed Lehcim's interest expense deductions. In addition, penalties were applied for failure to file timely returns and for negligent failure to accurately report income and deductions. In 2019 the IRS mailed Lehcim a notice of deficiency that identified $1,435,245 in unpaid taxes and penalties. The IRS assessed Lehcim's tax deficiencies on July 13, 2020. On November 30, 2020, the IRS issued Lehcim a Final Notice of Intent to Levy in the amount of $2,091,455.

Neuberger and other NQGRG attorneys developed a plan to collect all of Lehcim's receivables and use the funds to repay the Nightingale loans (i.e., the repayment plan). The repayment plan involved transfers of money among multiple companies. Neuberger was involved when the plan was developed conceptually; he also engineered certain aspects of the plan. Konig was ultimately responsible for making the decision to implement the plan.

In 2020, Lehcim submitted to the IRS a Form 433-B, Collection Information Statement for Businesses. Lehcim's Form 433-B stated that Lehcim had no cash on hand or in banks, no investments, no available credits, and no real property. Neuberger signed the Form 433-B as Lehcim's president. In 2021, the IRS served a Notice of Levy on NQGRG for money it held on Lehcim's behalf. Neuberger acknowledged receipt and reported that there were no funds available. In 2022, the IRS served a Notice of Levy on two entities Lehcim had listed on the Form 433-B as having accounts or notes receivable but the IRS "received nothing." In 2022, the IRS also served a Notice of Levy on NQGRG as an alter ego of Lehcim.

In 2022, the government brought an action against Neuberger under the Federal Priority Statute, 31 U.S.C. Sec. 3713, seeking a judgment finding that Neuberger was personally liable for Lehcim's outstanding tax liability. The Federal Priority Statute provides that a claim of the United States must be paid first when a person (including a corporation) indebted to the government is insolvent and the debtor makes a voluntary assignment of property or "an act of bankruptcy" is committed. The priority of the government's claim requires evidence of three elements: (1) a debt due to the United States; (2) the debtor's insolvency; and (3) the occurrence of a triggering event - an assignment of property for the benefit of creditors or an act of bankruptcy.

Analysis

A district court magistrate judge found that Neuberger was personally liable under 31 U.S.C. Sec. 3713(b).

The court found that Lehcim's federal tax debt was a claim of the United States under the Federal Priority Statute. The court also agreed with the government that Lehcim was insolvent before and as a result of its transfers of funds to Nightingale. The court rejected Neuberger's contention that the government was taking contradictory positions as to the validity of the Nightingale loans by treating them as not bona fide liabilities for tax assessment purposes but as liabilities for purposes of assessing Lehcim's solvency. In the court's view, the IRS's disallowance of Lehcim's interest deductions was not a determination for any other purposes and was not the right test for whether to include the debt for valuation purposes. The court said that, irrespective of whether the Nightingale loans were debt or equity, Lehcim had an obligation of approximately $8.8 million by virtue of its execution of the repayment plan and transfer of funds to Nightingale.

Next, the court concluded that Lehcim's transfers to Nightingale under the repayment plan were preferential transfers, which constituted acts of bankruptcy. There was no dispute that Lehcim transferred over $8.8 million to Nightingale to repay the Nightingale loans, obligations that predated the IRS's assessment of a tax liability. Having already established that Lehcim was insolvent at the time of each of the transfers, the court found that the transfers therefore constituted preferential transfers that satisfied the triggering event element of the government's claim.

Finally, the court also found that Neuberger was Lehcim's representative who had knowledge of the government's claim and transferred the assets. Neuberger was Lehcim's only director, as well as its president and treasurer. The court noted that under the company's bylaws, Neuberger had authority to act on behalf of Lehcim, sign contracts and documents, borrow money, and manage Lehcim's property and business. Although Konig was ultimately responsible for deciding to implement the repayment plan, the court found that Neuberger was integral to the development and execution of that plan to pay Nightingale before paying the United States. According to the court, Neuberger helped develop the plan conceptually, directed that the plan include and exclude certain entities, monitored its progress, and overruled outside counsel's decision to put the repayment plan on hold. Given these facts, the court concluded that a finding that Neuberger was not responsible for the transfer of assets would defy both the evidence and the purpose of the representative liability provision of the Federal Priority Statute.

For a discussion of the Federal Priority Statute, see Parker Tax ¶262,530.

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

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