Corporation’s officer held personally liable for its taxes under Federal Priority Statute

A district court found that Isaac M. Neuberger, as the sole director, president, and treasurer of Lehcim Holdings Inc., was liable for the company’s tax debt under the Federal Priority Statute (31 U.S.C. §3713) because he orchestrated transfers of its assets to private creditors while it was insolvent.

Facts: Lehcim Holdings Inc. is a Maryland holding company established by the family of Michel Konig to manage the family’s investment interests.

Neuberger, as an attorney with the Baltimore law firm Neuberger, Quinn, Gielen, Rubin & Gibber P.A. (NQGRG), represented Konig, Lehcim, and the family’s other companies.

As Lehcim’s sole director, Neuberger appointed himself president and treasurer of the company. Neuberger also was director of Lehcim’s sole shareholder, Beauville Holdings Ltd., a British Virgin Islands entity.

Lehcim, in lieu of having a separate bank account, used NQGRG’s client trust account. NQGRG logged Lehcim’s financial transactions in a client-matter trust ledger. The company’s accountant relied entirely on NQGRG’s ledgers to prepare the company’s trial balances and tax returns.

From 2010 through 2015, on its Schedule L, Balance Sheets per Books, of its Form 1120, U.S. Corporation Income Tax Return, Lehcim reported liabilities that consisted primarily of three loans from Nightingale Ventures Ltd., another Konig-controlled British Virgin Islands entity. By the end of 2018, the aggregate reported balance of these purported loans was approximately $8.8 million. Lehcim also reported substantial tax deductions each year for interest paid on the loans from Nightingale. The IRS in 2014 or 2015 initiated an audit of Lehcim’s returns for 2010 through 2015.

The IRS concluded that the interest deductions were improper because the loans were not bona fide, which it stated in a preliminary report in March 2019. It further proposed to disallow the interest expense deductions related to the loans and impose penalties for failure to timely file the company’s returns for the 2010—2013 tax years and a negligent failure to accurately report income and deductions for all the tax years under examination.

The letter was received by Lehcim, its outside legal counsel, and NQGRG. The IRS subsequently issued a notice of deficiency on Nov. 20, 2019, asserting approximately $1.4 million in taxes and penalties. The IRS formally assessed the liabilities in July 2020 and issued a final notice of intent to levy in the amount of more than $2 million in November 2020.

While the IRS proceedings were ongoing, Lehcim’s advisers — Neuberger, the company’s accountant, and its vice president — developed an intricate repayment plan designed to clear intercompany balances among various Konig-related entities. This elaborate plan consisted of 10 rounds encompassing 124 distinct steps. The plan involved collecting all of the company’s receivables and using those funds, supplemented by a $2.6 million wire transfer from Beauville, to systematically repay the Nightingale loans. Between June 2019 and March 2020, Lehcim transferred a total of $8,816,813 to Nightingale through seven wire transfers. These transfers, all characterized as repayment of Nightingale loans, effectively depleted Lehcim’s assets.

Documentary evidence and witness testimony established that Neuberger had personally participated in developing the repayment plan, directed specific inclusions and exclusions within the plan’s structure, actively monitored its progress, and at one point overruled advice from outside counsel to pause the repayment plan.

On Dec. 2, 2020, at the IRS’s request, Lehcim submitted a Form 433-B, Collection Information Statement for Businesses. This form, signed by Neuberger in his capacity as president, indicated that the company had zero cash on hand, $967,475 in receivables, and $2,627,113 in business liabilities. The IRS subsequently served levies on NQGRG and related entities in an attempt to collect the outstanding tax debt.

The government retained a forensic accountant, Jessica Hollobaugh, to analyze Lehcim’s solvency at the time of each transfer to Nightingale. Hollobaugh did so using the balance-sheet test, which determines whether the liabilities of an entity exceed the fair market value (FMV) of its assets. She conducted the test for each of the seven dates on which major transfers occurred, which showed that Lehcim was insolvent on every testing date. Hollobaugh thus concluded that the company was insolvent before and after each of the transfers it made under the repayment plan.

The government filed suit in district court against Neuberger personally under the Federal Priority Statute, alleging that he caused the insolvent company to transfer assets to private creditors before satisfying its tax debt to the government.

Issues: The issues before the district court were whether the Federal Priority Statute applied in the case; whether the government had proved the elements necessary to establish that, under the statute, it had a priority claim for Lehcim’s tax debt; and, if so, whether Neuberger was personally liable for it.

Under the Federal Priority Statute, three elements must be met for the government to establish a claim of priority for a debt: (1) A debt was due the United States; (2) the debtor was insolvent; and (3) there was an assignment of property for the benefit of other creditors or an act of bankruptcy. The district court held that all three of these requirements were met with respect to Lehcim’s tax debt.

Neuberger argued that, based on the Supreme Court’s holding in Estate of Romani, 523 U.S. 517 (1998), the statute did not apply and, instead, the government’s exclusive remedy was the Federal Tax Lien Act of 1966, under Sec. 6321 et seq. Neuberger contended that in cases involving tax debt, the government must first obtain a lien against the taxpayer and then could apply the priority rules in Sec. 6323. The district court concluded that Neuberger’s characterization of Estate of Romani was “far too broad” and that the government’s claim was properly asserted under the Federal Priority Statute.

The district court then determined whether the government had proved each of the required elements of the Federal Priority Statute. Both parties agreed that there was a debt due to the government, so the first element was met. With respect to the second element, whether Lehcim was insolvent on the seven dates when it transferred funds to Nightingale, the court noted that the government’s expert, Hollobaugh, applying the balance-sheet test, had concluded that on each transfer date, the company’s liabilities exceeded its assets by millions of dollars before and after the transfer. She valued the assets at FMV, included the IRS’s $1.4 million proposed deficiency as a liability, and made downward adjustments for questionable receivables and inflated valuations.

Although the parties largely agreed with Hollobaugh’s findings about the company’s insolvency, Neuberger asserted that the doctrine of judicial estoppel prevented the government from taking the contradictory positions that the Nightingale loans were not bona fide but were liabilities for purposes of assessing Lehcim’s solvency. The district court found, however, that the government had not taken contradictory positions as to the validity of the loans. Further, after reviewing the facts of the case, the court concluded that the elements for judicial estoppel were not satisfied. Thus, the second element of the statute was met.

With regard to the third element, the district court found that there was no dispute that Lehcim had made the seven transfers of over $8.8 million to Nightingale and that the company was insolvent at the time of all of the transfers. Therefore, citing a previous decision of the court in Neuberger’s case (Neuberger, No. EA-22-2977 (D. Md. 8/27/24) (Neuberger II)) and several Ninth Circuit decisions, the court concluded that the transfers were preferential transfers that satisfied the third element.

Having determined that the government had priority for Lehcim’s tax debt under the Federal Priority Statute, the district court then considered whether Neuberger had representative liability for the debt. Sec. 3173(b) imposes liability on a representative who pays any part of a debt of the represented person before a government claim. Courts have interpreted the statute as requiring that the representative (1) transferred or distributed the debtor’s assets before paying the government’s prior claim (2) when the debtor was insolvent and (3) knowing or having notice of the government’s claim.

The district court found that the second and third elements were met because, as it had determined earlier, Lehcim was insolvent at the time of the transfers and the parties concurred that Neuberger knew of the government’s claim. Thus, the only remaining questions were whether Neuberger was Lehcim’s representative and whether he transferred or distributed the company’s assets before paying the government’s claim.

Regarding whether Neuberger was a representative, the district court found, as it had in Neuberger II and other cases, the term “representative” in Sec. 3173(b) includes corporate officers, among others. Thus, the court determined that Neuberger was Lehcim’s representative. He was its sole director and its president and treasurer, and under the company’s bylaws, Neuberger had authority to sign contracts and documents and borrow money on the company’s behalf and manage its property and business.

The court also found that although Konig, not Neuberger, was ultimately responsible for deciding to implement the plan to pay Nightingale before paying the government, Neuberger was integral to the plan’s development and execution. The court observed that other courts have found corporate directors and officers who took similar actions in similar situations were personally liable.

Holding: The district court held that Neuberger was personally liable for Lehcim’s tax debt under the Federal Priority Statute. The court stated, “A contrary finding — that despite being the sole director, president, and treasurer and managing Lehcim’s affairs, Mr. Neuberger is not responsible for the transfer of assets — would defy both the evidence in this case and the purpose of the representative liability provision of the Federal Priority Statute.”

In a subsequent decision on Jan. 23, 2026, the court entered judgment against Neuberger in the amount of $1,880,987, the full amount of Lehcim’s tax debt. The court declined to award after-accruing interest or prejudgment interest.

• Neuberger, No. EA-22-2977 (D. Md. 10/23/25)

— Thomas Godwin, CPA, CGMA, Ph.D., and John McKinley, CPA, CGMA, J.D., LL.M., are both professors of the practice in accounting and taxation in the SC Johnson College of Business, and Matthew Tardif is a student in the Dyson School of Applied Economics and Management in the SC Johnson College of Business, all at Cornell University in Ithaca, N.Y. To comment on this column, contact Paul Bonner, the JofA’s tax editor.